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One of the payroll tasks of any tax year-end is completing PAYE summaries (P14s), Did you know, the higher the NI error rate on these the more likely a visit is from the Taxman? How can you prevent this error count from rising too high?

Recap. As an employer you are responsible for reporting to the Taxman at the end of the tax year information on the individuals you employed (including leavers) during that year. One of these returns is the Form Pl4/P60, which shows pay, tax, and NI. For 2003/04 these need to be sent into the Taxman (with a P35) by May 19, 2004.

Errors. If too many Pl4s have errors on them then this moves you up the list for a possible PAYE visit on the basis the Taxman thinks that your records are inaccurate or incomplete. So it's best to carry out a health check of your P14s before you submit them. There are a number of checks you can carry out, however our top tips are as follows.

Missing NI numbers. If the NI number is missing this will result in the NI computer recording an error. If you haven't got the NI number insert a temporary one such as ABl23456C or TN, date of birth and F(emale) or M(ale) on a P14. 2003/04 is the last year you will be able to do this.

Tip. If you haven’t already done so issue an NI trace (Form CA6855 available from your tax office) to the Taxman for missing NI numbers and employees with temporary numbers. You'll need these if the Taxman raises a query, and for your 2004/05 payroll.

Missing letters. There's a space on the P14 for NI table letters (A, D, E etc.). Omitted NI letters are logged by the Taxman's computer as errors and he won’t be able to check if the correct contributions have been made. This raises further queries and the chance of a visit.

Tip 1. The last digit of the NI number is not the category letter that should be operated for NI. Also, don't put an "X" in the box unless the employee is (1) a pensioner; (2) under 16 years of age; or (3) has an exemption certificate from another country.

Tip 2. Check for non-standard NI letters. If you have any employees on contracted-out NI letters (D,E,F,G,L or S) make sure a valid employers' contracted-out number (ECON) is used on the headers of the PI4s (and on the P35s). For employees on letters F, G and S then you need the scheme contracting-out number (SCON). Otherwise most people should be on non-contracted-out table letter A.

NI earnings figures. On the P14 the employees' earnings for NI purposes are split into three elements. Check that these do not exceed the maximum for each. They are: Column l(a) £4,004 (52 times £77), Column 1(b) £624 (52 times £12) and Column l(c) £26,312. There is no separate reporting requirement for earnings above £30,940, (£4004 + £624 + £26,312) even though they now attract an employees' NI at the rate of 1%, as these earnings contributions have no impact on an employee benefit entitlement.

Directors. Check that directors' NI has been recalculated on an annual earnings basis.

Negatives. Look out for negative tax and NI entries. These can be negative but check that these have not been entered in error.

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This web-site was last updated on 29/07/2008

Specialist Dental Accountants for over 27 years.

Copyright © 2003-2008 Mac Kotecha & Company. All rights Reserved. The information on this site is for general guidance only. It is essential to take professional advice on specific issues about their impact on any individual or entity. No liability can be accepted for any errors or omission or for any person acting or refraining from acting on the information provided on this site.

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