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Jun 22, 2022

HMRC reminds businesses to update basic PAYE tools

An important update to the basic PAYE tools will be released at the beginning of July 2022.

In the Chancellor's spring forecast statement on 23 March 2022, Rishi Sunak announced that from 6 July 2022 the point at which taxpayers pay Class 1 National Insurance is set to increase to £12,570 in line with the income tax personal allowance.

As such, basic PAYE tools will be updated to calculate the correct National Insurance contributions deductions from 6 July, which businesses must install.

For employee payments due on or after 6 July 2022, businesses must use basic PAYE tool version 22.1 (the version number appears in the bottom left-hand corner of the basic PAYE tool screen).

To ensure you don't miss the critical basic PAYE tool release, you should update your settings now:

  1. Click on ‘setting' in the top right-hand corner of the basic PAYE tool.
  2. Set the automatic updates to ‘yes'.

Benefits of using the basic PAYE tool

The basic PAYE tool allows you to perform most payroll tasks, including working out the tax and National Insurance for your employees and easily send this information to HMRC.

If you have payroll software that cannot do certain tasks, you can use basic PAYE tools alongside it to:

  • check a new employee's National Insurance number
  • send an employer payment summary
  • send an earlier year update for the 2019/20 tax year and earlier.

However, the software has some limitations as it is not designed for agents or bookkeepers with more than three clients. Other payroll software is available.

As a new customer, you must have registered for online PAYE as instructed in your new employer letter before you can use the basic PAYE tool to run your payroll.

You can download the basic PAYE tool from GOV.UK where you will also find comprehensive assistance to help you install the software.

Check you are using the right PAYE reference

HMRC also reminded businesses to check their payment reference number is right every time if they are making PAYE payments to HMRC.

If the incorrect reference number is used, your payment may not be recognised, which can lead to penalties and charges being issued, even if you have paid on time.

A payment reference number is specific to the type of tax and the accounting period for which you are making a payment.

The characters in a payment tell HMRC where to allocate payments, which speeds up the payments process.

HMRC said:

"We want to help you get your PAYE reference right. You can use the ‘Pay now' tool to find the correct reference number to use each time."

Reporting PAYE in real time

HMRC has also confirmed it will continue its risk-based approach for the 2022/23 tax year after a review into the effectiveness of the system.

This means that late filing penalties will continue to be considered on a risk-assessed basis rather than issued automatically.

The first penalties for this tax year will be issued in August 2022.

HMRC also confirmed that, as in previous years, it will not charge penalties automatically if a full payment submission is filed late but within three days of the payment data and there is no pattern of persistent late filing.

However, this is not an extension to the current statutory position on reporting PAYE payments, which remains unchanged, HMRC said.

Employers are still required to file submissions on time - unless any of the circumstances set out in the ‘sending an FPS after payday' guidance arise.

Employers who persistently file after the statutory filing date but within three days will continue to be monitored and may be contacted or considered for a late filing penalty as part of HMRC's risk-based approach.

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