5 Steps to a Stress-Free Payroll Year End

The other day in Keytime towers, Jim was telling me a story about a friend of his, who had managed to rack up £22.50 in library fines. The plucky hero in our story spent some time pleading with the librarian, attempting to wriggle off the hook in any way he could think of, including claiming poverty. Eventually, accepting defeat, he pulled out a couple of bags of 5p pieces he was intending on popping into the bank, and started slowly counting them out. In a moment of clemency, the librarian relented, and told him the fine would be wiped off his record. Her only condition was a 2 month reduction in the number of books he could borrow, and a promise to return them on time.

With payroll year-end just over a month away, it got me thinking about electronic filing of payroll returns; for the last few years, businesses with more than 50 employees have had to file their year-end paperwork online. This year, all businesses with 5 or more employees must file online by May 19th, or face fines (even if you file early on paper). Unlike the kind-hearted librarian in Jim’s story, HMRC are unlikely to relent.

There are a number of different fines and penalties in the HMRC arsenal; here are the main ones that apply to payroll.

• Failing to file online - up to £3000 penalty (applies even if you file by paper on time, and even if you try to correct things by filing again online).


• Filing late - £100 per 50 employees per month/part month that it is outstanding between 20th May and 19th September. Penalty notices are sent out again in January and May if you still haven’t filed.


• You can also be fined for paying late. Penalties can even apply if you pay an estimated amount, and then top up during the year. The best advice is to ensure that you get accurate, timely figures from your payroll service; whether you outsource it, produce it manually, or use commercial software to calculate your payroll.

5 Steps to a Stress Free payroll year-end.

1. If you haven’t already, register to file online with HMRC.

   www.hmrc.gov.uk/paye/file-or-pay/fileonline/register.htm



2. Setup your records for the new tax year.

   It’s best to have these prepared so you are ready to go on April 6th. HMRC “h3ly recommends that you use electronic methods to keep your payroll records.” (http://www.hmrc.gov.uk/paye/payroll/year-end/checklist.htm)

3. Finish off your payroll records for the past tax year.

   This basically means checking that the P11 records for each employee are correct, and using those figures to complete your P35 and P14s. Commercial software will usually do this for you, and give you a report so you can check that everything adds up.

4. Complete & file your Employer Annual Return, and make any payment needed.

   You need to complete one P14 for each employee, plus a single P35 form to summarise the end of year payroll totals for the business. These forms have to be with HMRC by 19 May, but you will need the figures earlier to calculate if you need to make a balancing payment, or if HMRC owe you a refund. If you have to make a balancing payment, funds must reach HMRC by 19th April for postal payments, or by 22nd April for electronic payments.

5. Give each employee a P60.

   You have to give a P60 to each employee who was working for you on the last day of the tax year (5th April). The latest you can give the P60s is 31st May.

In a future post, I’ll go through in-year filing, and how you can get ready before it becomes compulsory.