Local agreements on PAYE operation and payments must now comply with national PAYE operating guidelines.

Over the years, some employers have reached local agreements with their local tax office and these have not complied with the national PAYE operating guidelines. These local agreements are now being ended as they will not meet the validation requirements that were introduced from 6 April 2008.

To avoid rejections, HMRC is reviewing all local arrangements with a view to terminating them; and customers and practitioners should urgently conduct a similar review to avoid having their data rejected.

From 6 April 2009, if an employer has 50 or more employees, employee starter and leaver information (P45s, P46s and similar pension information) must be filed online.

As part of this change, from 6 April 2008 HMRC introduced validations to online submissions to help improve the standard of the employee information. These validations will also be introduced to paper submissions of starter and leaver information later on in the tax year 2008–09. The validations reflect those that were introduced to employers’ end of year Returns in 2005.

Further changes to HMRC's internal processes ‘Bringing in PAYE improvements’ will take place in October 2008. These automated processes are dependent upon employers operating PAYE (Pay As You Earn) in line with the national PAYE operating guidelines that the HMRC have published on the Internet, on the Employer CD-ROM and in HMRC's Employer Helpbooks.

The most common examples of local arrangements are:

• Using substitute forms P46.
• Not following the P46 procedures where forms P45 not received.
• Not using tax code BR (Basic Rate) as the form P46 default tax code.
• Not providing starter information when relevant income thresholds are reached (the Lower Earnings Limit from 6 April 2008).
• Sending data on CD-ROMs.
• If you are a pension provider, do not use a spouse's National Insurance Number (NINO).
• Pension providers using the NINO of a parent when a child is receiving a pension.

Further information is available from HMRC website at http://www.hmrc.gov.uk/news/local-arrangements.htm.