The P14 End of Year Summary and its employee version, the P60 End of Year Certificate, are the principal documents that you will produce when you do your annual PAYE returns. Both are derived from the same payroll data and on the old-style paper returns they together formed the multi-part stationery which has now thankfully been consigned to the dustbin of history since on-line filing became compulsory.
Most commercial payroll software will run your annual PAYE returns automatically so there should be no need for you to input data manually. However, if you use the free software provided by Government Gateway, it will be necessary to enter the data for each employee on your payroll individually. Irrespective of whether data entry is automatic or manual, you should first make sure the employer name and address on your payroll software is up to date, as generally it cannot be changed once the PAYE returns have been run. So if you have moved offices during the last year, make sure this is amended on your payroll system before the end of the tax year as it is an easy thing to overlook.
You should also make sure all your employee addresses are up to date. Not many people bother to tell their employers when they move to a new address, and even fewer employers bother to tell their payroll agents, so it is a good idea to ask all your staff to confirm their current address and inform your payroll agent of any changes before they do the PAYE returns. The P60 will show the latest address held on the payroll system and out of date information cannot usually be rectified later.
The first figures you will enter on a P14 will be the gross earnings of the employee in boxes 1a to 1d. These analyse gross pay as follows:
Box 1a - Up to and including the Lower Earnings Limit (LEL)
Box 1b - Above the LEL up to and including the Earnings Threshold (ET)
Box 1c - Above the ET up to an including the Upper Accrual Point (UAP)
Box 1d - Above the UAP up to and including the Upper Earnings Level (UEL)
The UEL used to be a Limit as well but has been a Level since April 2003 when all earnings above this threshold were subject to employee NICS for the first time at a lower rate of 1%. The UAP was introduced in 2009/10. It affects entitlement to the State Second Pension and rebates to contracted-out schemes.
You need to know the monthly/weekly gross pay for each employee in order to calculate the figures for each box. That is because NI is calculated on a monthly/weekly basis (apart from directors) and it is possible for monthly/weekly earnings to be above the UEL or LEL for an individual PAYE period but not for the year as a whole. The figures will also be different if the employee started or left during the tax year. For example, if an employee joined the payroll in October the figure to go in Box 1a will be half of the annual LEL figure that would apply to employees who were on the payroll for the whole of the tax year.
For directors the figures are easier to calculate as their NI must be calculated on an annual cumulative basis. Therefore you can go by the annual thresholds, but you still need to watch for directors who started or left during the tax year, or who were appointed (or resigned) since the end of the previous tax year.
The next figures to go in will be the NI contributions for the year. Box 1e will be the total of employee and employer contributions whilst Box 1f will be employee contributions only. It is at this point that you may need to do a bit of checking. Most payroll software will calculate the correct figures anyway provided the right information has been given, but if you calculate your NI figures manually or on spreadsheets it would be wise to check the accuracy of your year end totals for each employee as it will probably be your last chance to make any corrections. Otherwise, if you get it wrong, you will probably receive a letter from the Revenue a few months later asking you to explain the discrepancy.
Employer contributions are the easiest to check as they are charged at a single rate (12.8% for 2010/11) on all earnings above the ET. Therefore, if you take the total earnings figure for the current employment, deduct the figures in Boxes 1a to 1b and multiply by 12.8%, you should get roughly the same figure as Box 1e minus Box 1f. For employee NI you first need to take the figures in Boxes 1c and 1d and multiply by 11%. You then need to take the total earnings for the current employment, deduct the figures in Boxes 1a to 1d and multiply by 1%. The sum of the 2 figures should be more or less the same as the figure in Box 1f.
Statutory payments are the next to go in. Strictly speaking, Statutory Sick Pay (SSP) should be calculated and shown in Box 1g even if the employee received his or her normal pay whilst absent on sick leave. However, this means working out which absences qualified for SSP, and there is usually little point in calculating this figure if the employer is unable to recover any of it from the Government. Most employers therefore leave this box blank unless they actually pay SSP instead of normal pay when an employee is on sick leave. This often happens if an employee is on extended sick leave and their contract does not entitle them to normal pay for more than a certain number of sick days each year.
The other statutory payments are Maternity Pay (SMP), Paternity Pay (SPP) and Adoption pay (SAP). Most employers can recover these either in whole or in part, so they are always worth reporting. When you are preparing a P14 for a male employee the SMP box will be greyed out, but the SPP box will not be greyed out for female employees as some can still claim it if they are in a single sex relationship and have responsibility for a child born to their partner. Remember therefore to put a zero in Box 1i if there are no figures to report as with all others on the P14 that do not apply.
Student loans can be an easy figure to miss if you are keying in data manually. Make a note of employees paying back student loans before you start so you do not automatically put a zero in Box 1k as you would for most employees. Otherwise you will probably spend ages looking for a difference between the PAYE totals on the P35 and your total PAYE payments during the year.
The final task will be to split total earnings and total tax for the year between those relating to the current employment and those from previous employments. This is only necessary if an employee who started during the tax year gave you a P45 or you received a P6 from your PAYE office showing previous pay and tax. You should also enter the final tax code, although this cannot always be used as a cross-check on the tax figures as there may have been a tax code with a W1/M1 suffix at some point during the year.
Once you have done all your P14s and the P35 is finalised, you can print the P60s. You will also get hard copies of the P14s for your own records. Your payroll system may well print P60s for employees who have left (the Government Gateway software definitely does). You will need to fish these out as P60s must only be issued to employees who are currently on your payroll. Those who have left will have already been given a P45 and they will have all the figures they need for their tax return on Part 1A of that form.
You may experience difficulty printing P60s from the Government Gateway system if you use Internet Explorer as your browser. This can be overcome by using Mozilla Firefox instead.
Finally, make sure your employees receive their P60s by 31st May. This is a legal deadline and you can be fined if you miss it. More than a few employers simply stick them in a drawer and forget about them, so always take them seriously and hand them out straight away. It may seem obvious but put them in envelopes too and treat them the same as any other confidential documents. No unauthorised person should ever see a P60 without the approval of the employee concerned.