Partner Article

PAYE reforms could be detrimental to employers

Concerns have been raised over HMRC’s proposed introduction of Real Time Information (RTI) into the PAYE system, by Straughans Chartered Accountants and Tax Advisers.

The firm say the introduction of RTI into the PAYE system is likely to have a negative impact on business across the UK, despite its presentation as a positive move by HMRC.

Through the overhaul, employers will be required to submit employee information on a ‘real time’ basis, each time an individual is paid.

Introduction of this system is intended to reduce the likelihood of PAYE-generated tax code errors which have plagued the system since the National Insurance and PAYE system was introduced in 2009.

Errors arise as extra sources of employee income only come to light after the Annual Employer Return, resulting in the allocation of an incorrect tax code, which can take years to rectify.

Mike Fleming, CTA, TEP, Partner at Straughans Chartered Accountants and Tax Advisers and former Inland Revenue Tax Inspector raised concerns about the time-consuming nature of the new process.

He said: “The sheer frequency with which the information must be sent through to the Revenue could prove hugely time-consuming and disruptive to business for employers. RTI may help to streamline HMRC’s systems, but it could wreak havoc for SMEs.

“In addition, some of the information requested will be pumped into government enterprises which have no direct relation to PAYE. For example, the Department for Work and Pensions (DWP) will use the information to introduce a Universal Credit System to replace the current benefits structure.

“It is the DWP’s need for certain information, which RTI will provide, by October 2013 which is pushing the Revenue to work to an unrealistically tight timescale. While a pilot involving volunteer employers, including HMRC itself, will be set in motion from April this year, this leaves very little time for any real changes to be made before the system becomes mandatory in 2013.

“My concerns are twofold: that the Revenue is being rushed into implementing changes which may have serious implications for employers across the UK because of an objective set by an entirely different arm of government, and that the government may continue to use RTI as a means of getting employers to harvest information for them.

“I cannot be alone in finding it ironic that employers are going to have to work harder so that the DWP can use their hard-won information to overhaul the benefits system. If information is required for a new initiative, the onus should be on the government and not the employer to do the groundwork.

“Aside from my concerns about the extra time employers are going to have to spend submitting information to the revenue about their employees and the frequency with which they will be required to do it, HMRC’s track record also leads me to expect that we will have to deal with widespread systemic errors when RTI is introduced.

“We all remember the problems with the PAYE software when it was introduced. It is hugely optimistic to expect the software HMRC is having developed to add to its ‘Basic PAYE Tools’ package to work first time.”

Enrio Liverani of DCS Payroll Agency, one of the businesses taking part in the pilot of RTI from April this year, expressed his doubts about the efficiency in the proposed scrapping of the P45.

He said: “In my opinion this lack of clarity will cause more error and confusion than the current system creates. The P45 is universally recognised by both employers and employees. It works because both the information and the format are mandatory.

“The introduction of a separate leavers’ statement of indeterminate format can only lead to confusion for all.

“The vast majority of micro and SME businesses do not employ professional payroll staff; it is unreasonable to expect people to extract the correct information from what will be a host of different looking forms.

“It has been suggested that final payslips could be used in place of the P45. I would argue that this would create a huge margin for error, especially for non-professional payroll operators in deciphering the various totals listed on the pay slip; for example gross pay, taxable gross and pensionable gross are all listed.

“I believe that RTI will create extra work for employers, who will be required to decipher information presented to them in a format not designed for the purpose. We as a payroll agency are unconvinced that RTI is a positive thing for employers.

“We don’t understand how removing what the Revenue terms the ‘onerous’ job of submitting an Annual Return or P35 (which is today an automatic job generated from payroll software) and replacing it with the constant burden of having to submit RTI, in some cases up to 75 or 80 times a year, is going to improve things for employers.”

Mike Fleming went on to add that in his opinion, RTI appeared to be cost-cutting exercise, conveniently requiring employers to do the Revenue’s work for them.

This was posted in Bdaily's Members' News section by Tom Keighley .