Employment Tax Reporting Obligations

1. ‘Pay As You Earn’ (PAYE) and National Insurance

The PAYE Regulations 2003 and various Social Security / National Insurance Regulations place an onus on the University as employer to deduct tax on earnings paid to its employees at source, i.e. unless there is a specific exception, the general rule of thumb is that all payments to employees must be made after the deduction of tax and National Insurance.

Payments to employees or workers are made on a monthly basis, and returns to HMRC are made monthly. At the end of each tax year, annual statements of earnings (P60) are also sent to employees, providing information on total taxable earnings, tax-free allowances and deductions for the previous tax year, so long as the employee/worker has a 'live' record on the HR/payroll system as at 31st March.

2. P11D and taxable benefits

The University is required to make an annual return to HMRC declaring all taxable payments or benefits provided to individuals not otherwise dealt with via the PAYE process. This occurs after the end of each tax year and is based upon a questionnaire that is circulated to each department to gather the necessary information.

3. Gross payments and ‘Section 16’ returns

Under Section 16 of the Taxes Management Act 1970, HMRC are empowered to request that employers provide a complete list of all payments to individuals made without deduction of PAYE in any tax year. Organizations that employ a lot of ‘consultants’ or self-employed individuals, such as the University, are usually asked to provide this information on a regular basis.

HMRC compare this data with personal tax returns to determine whether correct amounts of tax have been paid.

1. UK corporation tax

Although the University is a charity, exempt from the payment of Corporation Tax on profit made in the furtherance of its charitable aims, it still has an obligation to complete annual Corporation Tax returns for HMRC to prove its ongoing tax-free status.

2. Overseas taxes

The University is also required to complete the United States equivalent of a Corporation Tax return (US form 990) on an annual basis, as it has interests in and income from US sources that would otherwise be taxable.

1. VAT

Under the VAT Act 1994, the University is required to complete regular VAT returns showing VAT paid on purchases (inputs) and VAT charged on income (outputs). Returns are currently completed on a quarterly basis.

In addition, being a provider of education (an exempt VAT supply), the University is required to complete an annual computation to determine the apportionment of its VAT between business and non-business activities as well as the proportion of its overhead costs that can be attributed to exempt activities (the ‘partial exemption’ calculation).