Are you prepared for the new tax timetable?
Friday, April 12, 2013
Rather than allowing employers to submit annual PAYE accounts, like they used to, HMRC is about to demand that they upload details every time they pay someone, starting from this month's payday.
Right from its inception, the coalition claimed it would be practicing the politics of listening, and many a policy U-turn since has been the proof, by one interpretation, that it has kept its word, with plenty of ideas that proved unpopular in the public eye gone back upon. There is another interpretation of these climbdowns, however: that these policies were just not well enough thought through in the first instance and were dumped, not as a result of listening but because they were unworkable from the off.
Quite where the shift to real-time information (RTI) reporting for pay-as-you-earn (PAYE) information will sit in terms of these interpretations, if it gets to a U-turn stage at all, remains to be seen. While not dropped as yet, it is certainly floundering, with hasty, last-minute amendments confusing an already complex policy. The government claims the changes are not the first manoeuvres of a U-turn but tweaks made as a result of listening to the issues that small firms in particular are having with the shift to RTI. Critics are less sure, citing the proportion of businesses still clueless about RTI as evidence that, without a U-turn, HRMC may have a disaster on its hands, come end-of-the-month PAYE reporting time in a couple of weeks.
To recap, the shift to RTI essentially means that employers and pension providers have to report PAYE information, such as pay, tax and deductions from employees’ pay, electronically every time they pay employees rather than once, at the end of the tax year. Its aim is to cut fraud and pave the way for the universal credit single payment stream for benefit claimants, as well as to reduce business administration costs. The date the government set for it to begin was 6 April 2013.
This schedule looked ambitious as far back as October 2012. Back then, knowledge of even the term RTI was scant. Of the dozens of printers, large and small, contacted by PrintWeek at the time, only two had heard of RTI, with policy adviser at the Federation of Small Businesses (FSB) Priyen Patel commenting: "Too many people out there are oblivious to this still. We want to see more balance in it and perhaps an extension to the roll-out period."
That extension did not initially occur. The clamour grew louder, however, and there was a real fear of disaster on the cards, so those first U-turn manoeuvres came to being: small businesses paying employees weekly or more often were, as of last month, suddenly given a grace period. Until 5 October, those paying weekly or more often can now report monthly like everyone else.
Whether this makes the situation any better for those companies is a contentious point. Even more contentious is whether RTI is any more workable than it was back in October. There are certainly plenty who feel that, though more are up to speed than a few months ago, there’s still an alarming number in the dark and the government is not listening to the problems.
"It’s difficult to tell how ready people are. If you ask ‘are you aware of this?’, the answer is generally yes, because they may have heard of the initials somewhere, but that doesn’t mean they are truly ready," says Laurence Bagley, finance director at Kall Kwik and therefore the man tasked with ensuring all Kall Kwik franchisees have the right software or outsourced payroll assistance in place ready for the end of the month. "How prepared people are is a real mix," he says.
Robert Downes, a spokesman for the Forum of Private Business (FPB) agrees. "This development perhaps hints at something of a panic at HMRC that many, many small firms still aren’t fully prepared for RTI," he said when the relaxation was announced back in March. He later added: "It’s only going to take a couple of per cent of UK businesses not being prepared for this for the whole system to go into meltdown. I imagine there’s a bit of panic at HMRC – they’re realising they’re not going to have 100% compliance if they go ahead as planned."
Meltdown, U-turn or concessions?
The crucial question is whether there’ll be enough of a meltdown for HMRC to have to make further concessions, or indeed inflict another embarrassing U-turn on the coalition. Downes’ take on the situation certainly seems to suggest that live reporting issues may be widespread enough to merit some relaxation of fines or even of conformance deadlines. It might well come down to just how widespread dissatisfaction with HMRC’s handling of rolling out RTI PAYE reporting has been.
There are certainly plenty who feel the body could have communicated the changes in a clearer, more timely manner.
"They haven’t communicated as well as they could. This is the biggest change since PAYE was introduced in the 1940s," says Downes, who also adds his voice to the clamour of those criticising HMRC for unambitious targets in answering enquiries, following the closure of its enquiry centres. "HMRC is not best known for communicating well with business, they’re not easy to get hold of," he says. "Their new aim of answering 80% of phone calls in five minutes is dreadful."
The government has its supporters, though, including some in the print industry who believe businesses may be the cause of their own problems.
"I think we have been given enough warning," says Michael Moradian, managing director at micro business and Printing.com franchise PrintExpress. "To be fair to the government, I think that no matter how much warning it gives you, human nature is that you’ll always wait until the last minute, particularly when you’re busy doing day-to-day management and fire-fighting in such a tough business climate."
And, qualifying the reports from the likes of the FPB that many businesses are still unprepared for RTI, are reports from others that the picture emerging for them is one where many are actually pretty much ready.
"I think most people are sorted to be honest; it’s been a reasonable amount of time coming and there have been communications via HMRC," comments BPIF chief executive Kathy Woodward.
Indeed, there appear to be enough positive sounds out there for HMRC to stand firm in maintaining the merits of the system and on its plan to enforce it this month, stating: "This is not a withdrawal of the requirement to report PAYE in real time. All employers are still required to operate PAYE in real time and we expect most employers to be reporting PAYE in real time from their first payday on or after 6 April."
Ready or not, then, those printers believing that ignorance is bliss and that the government may back down are likely to be in for a shock – and a financial penalty – come payday. Getting their head around RTI before that date, then, is a must.
Gather extra information
Kall Kwik’s Bagley says that the very first thing someone who is only just getting to grips with RTI will need to set about is gathering the extra employee details that are now required. He says this is by far the most onerous part of implementing RTI.
"If printers are reading this article and it’s the first time they’ve realised they’ve got something to do, they’ve got to move very quickly, because the cleansing of data and submission of this has to be done before you do your first payroll," he says. "If you had a Pete Smith on your payroll but his name is Peter, then it will get refused. The data cleansing side does take some time and is a bit of a nuisance."
Bagley asserts, though, that as long as people move quickly, submitting this data should be possible in the timeframe given. "People do need to start it now, but a printer with 10 employees should be able to get their standing data cleansed and checked in a day or even half a day," he says.
The next decision to make is just how the company is going to deal with reporting on a month-by-month and, if applicable to them, eventually a week-by-week basis. The choice is between outsourcing this task to a payroll professional, as some companies already do, or getting to grips with software that will allow a DIY approach.
Some would say that, given the current timeframe and the fact that printers will have plenty to do with the above data gathering – a task that necessarily has to be done by them – it’s wise to outsource the actual processing of PAYE reporting.
Though he concedes that those printers already using software for submission of year-end PAYE reports may have an easy enough time of upgrading this to deal with a monthly schedule, Alex Sharples, director at print and stationery firm Fineline, feels those now facing a tight timeframe should seek expert help to start them off.
"This will be a real step change for a lot of people and I think they’re going to have to look very hard at whether they do payroll themselves or hand it over," he says.
And in fact there are quite a few who would say this is the best way for small businesses to tackle RTI in the long term, not just as a stop-gap measure.
"Why spend hours trying to do this when you could be spending hours creating business?" says Sidney Bobb, chairman of the British Association for Print and Communication (BAPC). "It’s not that expensive, I know companies that pay £150 a month, and get other admin services done for that fee too."
Both for the long term and the short term, then, outsourcing is a credible option. Others argue, though, that doing it yourself is actually better for you and that outsourcing defeats a key point of HRMC’s decision to bring RTI in: to save business some £300m per year on administration. So in theory the new system should actually make things easier not harder in the long-run.
"Provided this all works from HMRC’s end, this ought to make the process more straightforward," confirms Kall Kwik’s Bagley.
Just which software a printer should use if going down the DIY route is a matter of opinion though. The FPB’s Downes advises that checking out HMRC’s free software offering – available to companies of nine staff or fewer – should be a small business’s first port of call.
"You should first go to HMRC to get the free software – it’s very simple to use," he says. "You don’t want to be spending money on something you don’t have to."
Others, however, suggest that even if you are eligible for this, spending a bit of money to get more sophisticated software will be worth the outlay. Those who signed up to the HMRC package in the rush to become compliant, may now want to take a step back and do a bit of research on what else is available, says Fineline’s Sharples.
"We use Sum-it which is absolutely fantastic. And it’s very cheap – they’re offering a total payroll module for a £195 one-off fee, with basic support for £80," he says. The package is actually designed for farmers, which demonstrates how many handy yet inexpensive packages the printer might discover through a bit of research.
With all the software or outsourced help in the world, though, if businesses do not have enough information about what is happening with PAYE reporting, the government’s scheme is going to struggle. If, as some expect, there will be mass fines for non-compliance, and if that becomes a recurrent issue, as businesses struggle with yet another administration obligation thrust upon them, the government has form for backing down.
Yet printers should not be banking on that – HRMC appears to be holding firm and the BPIF says most printers are on board. There are also strong arguments why RTI should be adopted as a positive thing for a business quite apart from the fines for non-compliance. In short, you may not know enough about – or like – RTI at the moment, but you had better get used to it quickly.
Long-term RTI PAYE reporting success
First… Regardless of whether you have embarked on RTI by outsourcing to a payroll specialist or processing the electronic reporting in-house, think carefully about whether outsourcing or in-house processing is right for your business. Just as someone who has started off reporting using HMRC’s free software may now want to outsource this task to make sure such an important process is done correctly each month, someone who is already outsourcing may want to consider arguments from HMRC and others that report-as-you go PAYE should, in theory, make things more straightforward to do in-house. Which route you choose will depend on how many employees you have and how much time and expertise you have for in-house processing.
Then… If going down the in-house route, shop around for software. Consider HMRC’s free software package (for companies of nine employees or fewer), but also consider arguments that paying a bit extra for a trustworthy brand may be worthwhile.
"I would say don’t skimp on your payroll package," says Kall Kwik’s Laurence Bagley. "Choose something you know is robust from a brand you know you can trust, because this is the last thing you want to go wrong."
"If you’re in doubt, network," adds the BPIF’s Kathy Woodward. "Wherever you are in your region there are 250 similar companies round the corner. And before you switch to new software, ask the supplier to give you some reference sites to ring up."
Next… Draw up a schedule. "It’s once a year, sitting down and putting all your corporate reporting activities in a schedule so you don’t miss your deadlines," says Woodward. "Then I’d have a data checklist for all new starters so you have a clear procedure of what data you need to collect right at the beginning. Make sure you’ve written into your company handbook people’s responsibility for advising you of changes of circumstances."
As you go along… Don’t be afraid to ask for help from HMRC. Though he concedes closure of HMRC enquiry centres might affect the level of help that is forthcoming, the BAPC’s Sidney Bobb says: "Whenever I have an issue I always phone HMRC up and say ‘you’ll have to explain this very slowly’; they do and they’re very, very good. If you need help, ask for it."