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All P11Ds must be electronic from this year | accountingweb
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All P11Ds must now be submitted digitally

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Online submission of P11Ds and P11D(b)s will be mandatory from 6 April 2023. Ian Holloway looks at the implications of this move and what else might be in store.

4th Apr 2023
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We don’t usually get payroll processing changes directly from the HMRC’s Employer Bulletin. This is the place we go to for news about changes already announced. However February 2023’s edition broke this long-held tradition and contained one major announcement. There was also a hint of an announcement to come in the future.

Digital reporting

We know HMRC’s intention is that employers move to digital reporting where they are digitally capable. In July 2020 Building a trusted, modern tax administration system talked of how the UK “must have a fully digital tax system” and how digitalisation was “the global norm for modern tax administration”.

February’s Employer Bulletin, followed by more information in the March 2023 Agent Update, contained the announcement that submission of the P11D and P11D must be completed online and would not be accepted on paper from 6 April 2023. The Income Tax (Pay As You Earn) (Amendment) Regulations 2023 (for the P11D) and The Social Security (Contributions) (Amendment No.2) Regulations 2023 (for the P11D(b)) legislate for this to happen. Simply, where legislation once permitted online submission, it was not mandatory. From 6 April 2023, unless the employer is digitally exempt, voluntary online submission becomes mandatory. 

Voluntary to mandatory

Neither the Employer Bulletin nor the Agent Update state why this decision has been made. Yet, the explanatory note of the Income Tax Regulations is clear.

  • Online submission has been voluntary for over 10 years, is used by most employers, so now is the time to turn voluntary to mandatory for digitally able employers. 
  • Online submissions promote consistency, reduce manual intervention, reduce costs, reduce processing times and data quality. These are all HMRC benefits; the employer is not mentioned.

What happens now?

From 6 April 2023, there are now three ways for an employer or agent to submit P11Ds, P11D(b)s and amendment to either:

  1. PAYE Online for employers
  2. PAYE Online for agents, or
  3. Payroll software.

This applies to P11D submissions for the tax year 2022/23 (due by 6 July 2023) AND any amendments that may have to be submitted for previous tax years. There are a few considerations for employers, agents and software developers as a result of this late announcement, including the following.

  • Are all employers aware of the mandation of online submission? Not every employer in the UK reads the Employer Bulletin, Agent Update or follows the progress of new legislation.
  • Will all employers/agents have the necessary login details? Although most employers register online when they become an employer, what happens to those who have registered in a different way? 
  • What happens if a PAYE scheme has multiple locations and uses multiple databases and, say, some P11Ds are submitted on paper, some using software and some using the online service with the limit of 500 employees? Can employers/agents adapt quickly to online processing? Indeed, does the 500-employee limit allow part PAYE scheme submissions?
  • Employers/agents often submit listings to accompany P11D submissions, say where the online service limits the reporting of beneficial loans to 10. What happens when the employer has 11? 
  • If I am an organisation offering a P11D paper preparation service, will I have time to adapt my offering (given that I probably have a service level agreement in place that I won’t be able to honour through no fault of my own)?
  • What about the format of the P11D to the employee? We were never required to give an employee an actual P11D, merely detail the items that had been reported to HMRC. Will this announcement and the demise of paper give rise to an alternative way of providing benefit information to employees?

It seems HMRC has only considered the internal impacts, but not those of the stakeholders/customers it is generally proud to want to engage with. However, it does appear to have recognised the need for electronic versions of the P11D and P11D(b) and these will be available on gov.uk from 6 April 2023 so employers and agents can submit amendments electronically. April 2023’s Employer Bulletin will contain more information. 

What are the penalties?

This is interesting and strange. When employers are mandated to do something, they are usually penalised for failing to do it. 

Yet, while the Income Tax (Pay As You Earn) Regulations 2003 will be updated by the 2023 Amendment Regulations, Regulation 2(3) specifically says no penalty will be charged in the event of non-compliance. So, we are mandated to do it – although if we don’t we won’t get a penalty! 

Digital by default

HMRC appears to have returned to its consultation ways with the issue of a discussion document, Simplifying and modernising HMRC's Income Tax services through the tax administration framework, published at the time of the Spring Budget. This is all about HMRC’s move to “digital by default” and recognises that moving to this requires legislative and process changes.

It is clear HMRC wants electronic communication and, in an electronic world, I can understand this. Although, it is very important for HMRC to realise that not all employers/agents have the processes in place to allow this. The move from paper to electronic or annual processing to payrolling benefits is a transformation project that requires thought and, more importantly, time.

Therefore, I was very surprised and concerned to read the line: “For those employers who are yet to payroll expenses and benefits” (my emphasis). The word “yet” implies that mandation is only around the corner: “Haven’t you done it yet?”, “Aren’t you ready yet?” or, possibly, “I’ve yet to be told I have to do it’.”

Given that the February 2023 Employer Bulletin took on the role of advising us for the first time that something was happening, is payrolling of benefits the next thing to be mandated? HMRC needs to remember that this is NOT as simple as putting the P11D value through the payroll each time we pay an employee. 

The message for HMRC, is perhaps: discussion before implementation is always the best route.

Replies (10)

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By Hugo Fair
04th Apr 2023 22:37

Hear, hear to final sentence ... "The message for HMRC, is perhaps: discussion before implementation is always the best route" - except I'd lose the 'perhaps'!

As Ian knows only too well this is the common-sense message HMRC have been receiving for what feels like forever. However for at least 10 years (starting with RTI) they've not bothered to even pay lip service to that golden rule ... with a sense of insularity that automatically labels any 'outsider' as a mix of problem & trouble-maker, thus losing all opportunities to gain insight from the front-line before any changes are perceived internally as failures (and thus incurring vast extra costs).

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By Hugo Fair
04th Apr 2023 22:43

It'd be useful (if a bit late in the day) to know what numbers will be affected at such short notice:
* How many organisations are still operating 'unofficial' payrolling?
* How many submitted paper P11Ds last year (and how many of those had 500+ to report)?
* How many operate 'hybrid' payrolling & P11Ds for different benefits and/or different groups?
* How many issue later adjustments due to in-year uncertainty of final YE figures?

Wouldn't it have been more sensible to announce mandation with a longer (year+) lead-in time, accompanied by a push to provide support for those willing to move to payrolling (not as simple, if you include EE communications, as HMRC would like to believe)?

The policymakers within HMRC are starting to make headless chickens look like a good option!

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By Stargazer42
05th Apr 2023 10:39

Does this mean that if an amended P11D is submitted this can (at last) be done online as well or do we still have to submit a paper one?

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By birdman
05th Apr 2023 10:42

Where a couple share a vehicle, for example, the only way to make sure this is processed properly (and the correct method, using their guidance) is to send in a manual P11d with a letter of explanation. Will the online forms be amended to facilitate this? I certainly hope so!

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By justsotax
05th Apr 2023 11:50

"It is clear HMRC wants electronic communication...." .... have you ever tried communicating with the Revenue other than by phone or letter....

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Replying to justsotax:
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By AndyC555
05th Apr 2023 15:00

A client of mine has reported that HMRC's 'help' line has streamlined its service.

Instead of keeping him hanging on for 15 minutes before cutting him off, it just cut him off as soon as he got through.

Think of that! 15 minutes saved every time he calls HMRC.

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Replying to AndyC555:
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By Mr J Andrews
05th Apr 2023 16:15

This is HMRC's way of gearing up for their next step towards a digitalised telephone service.

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By Ian McTernan CTA
05th Apr 2023 18:46

If only employers had just one reference number covering all taxes, followed by, say, VAT if it's VAT, IT for income tax, etc then the entire system would be so much easier to use...instead of having to juggle a dozen different systems and numbers (two for employers!).

As for mandation of payrolling benefits, i expect it to happen sooner or later as:

1. HMRC have no clue how hard this might actually be to achieve for the real world and
2. the Institutes will once again roll over rather than stand up for their members.

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By richard thomas
05th Apr 2023 21:27

This is the second fork in the tongue used by HMRC when touting their “consultation” (mentioned by Ian) and working with interested parties on how they get to digital by default and smooth other creases in the tax admin carpet, the first fork being the unheralded forcing the under-70s to phone for a paper return and the now reversed decision to withdraw the SA100 etc from the website.

What’s odd about all this is that payrolling benefits does not get a mention in the Explanatory Memorandum to the regulation, despite the two things, payrolling and P11Ds being inseparably linked in the Agent Update.

There is an odd misapprehension about payrolling benefits which is either HMRC’s or mine (probably the latter). The Update implies, nay states, that if you payroll benefits you don’t need to send in P11Ds. This I assume is based on regulation 85(4) of the PAYE Regulations:

“(4) But this regulation does not apply in relation to a benefit provided in a tax year which has been treated as a payment of PAYE income under Chapter 3A of the Regulations.”

Thus if the list of things that must be on a P11D (see regulations 86 and 87) is the same as the list of things that can be payrolled in accordance with Chapter 3A the the statement is of course true.

Are the lists the same? Hands up those who think they are? About the same number of people who don’t think Boris Johnson knowingly lied to Parliament.

The list in regulation 61A covers benefits treated as earnings under Chapters 4, 6 and 10 of Part 3 ITEPA (not necessarily all as it refers to particular sections and I haven’t checked whether that covers the whole field). But there are currently 6 Chapters which so treat benefits, including Chapter 3 (expense payments), Chapter 5 (living accommodation) and Chapter 7 (cheap loans).

What does the P11D cover? All of the Chapters of Part 3 ITEPA, including Chapters 3, 5 and 7 of course, plus

• any payments made on behalf of the employee by the employer or related third party and not repaid, including the amounts;

• the due amount in respect of any notional payment where that amount is treated by section 222 of ITEPA (payments on account of tax where deduction not possible) as earnings of the employee received in that tax year;

• any earnings consisting of the amount by which the value of the exemption under subsection (2) of section 287 of ITEPA (limit on exemption of removal expenses and removal benefits) exceeds the limit specified in subsection (1) of that section and having effect in relation to the employee.

• in the case of any earnings relating to business entertainment, as defined by section 356(1) of ITEPA, the employer must also inform the Inland Revenue whether the amount of the earnings has been or will be disallowed as a deduction or inclusion … in any tax computation relating to the trade, business, profession or vocation of the employer.

• any sums put by the employer or related third party at the disposal of the employee by reason of the employment and paid away by the employee;

• any mileage allowance payments which are not approved mileage allowance payments;

• any passenger payments which are not approved passenger payments.

Thus even if all benefits than can be are payrolled there will be others that cannot be, or are already and have always been payments of PAYE income and within PAYE without the help of Chapter 3A.

Either this is correct or I have missed the amending regulations that brought all benefits within payrolling and so outside regulation 85.

Another very intriguing issue raised by Ian is the question of penalties. As one might have expected there is nothing about this “soft landing” or whether it is permanent or temporary in any HMRC publication or the Explanatory Memorandum.

The equivalent regulation for the P11D(b), the Social Security (Contributions) (Amendment No. 2) Regulations 2023 (SI 2023/308) have no similar provision, so I wondered why.

The Social Security (Contributions) Regulations 2001, those amended by the 2023 regulations, contain a penalty for failure to use electronic communication for RTI returns of Class 1 NICs (regulation 90P) which mirrors that in regulation 210 of the PAYE Regulations as applied by regulation 210D in the case of RTI returns under regulation 67B of those regulations.

The amendment regulation for PAYE adds the P11D to “specified information” in regulation 207. The purpose of doing so is to permit the Board to make directions under regulation 205 (which they have just done). The definition of “specified information” also links to the penalty provision in regulation 210. As it happens regulation 201 is an empty box in 2023 as it referred to P46s and P14/35s although it was deemed to apply to RTI returns by regulation 210D. Thus to make electronic communications directions possible the drafter either had to make special arrangements for P11Ds or use the existing definition provision in regulation 207.

By choosing the easier way the drafter had to discover what the policy on penalties for using the wrong method was. Obviously HMRC decided that, unlike for RTI returns, there was no need for a penalty, either for PAYE or for NICs. This may be because unlike the RTI return, the P11D is a “third party” reporting provision and eg has no bearing on UC payments (I assume!) and so getting the information in the wrong form was not important, or not as important as with RTI returns.

This explanation does not however work quite so well for Class 1A NICs where there is also a payment obligation, and a penalty for failure to use the wrong method for RTI.

So I’m still slightly at a loss. And it may be that in practice regulation 210 is a dead duck. The penalties for failure to make a P11D and P11D(b) are still there of course, irrespective of the method used.

So all in all it’s a very confusing situation.

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Replying to richard thomas:
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By Beef curtains
06th Apr 2023 09:57

From the Oxford English dictionary:-

""Consultation" noun. A process whereby a government carefully notes your comments and subsequently ignores them completely".

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