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Improving the operation of PAYE – Forum review
Monday, September 27th, 2010
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The deadline for the submission of responses to HMRC’s discussion document on the future of PAYE was 23 September. In order to provide HMRC with additional face to face commentary from industry professionals ahead of the deadline, The Learn Centre sponsored an evening forum to discuss the proposals, hosted by Kate Upcraft. Forty invited guests representing bureaux, software developers, tax managers and employers heard Peter Hopkins, the Deputy Director who is the policy lead for the proposals, outline HMRC’s rationale for their two stage approach to improving PAYE.
Against the backdrop of the current media coverage of the 6m cases from the previous two tax years where PAYE has not resulted in an accurate deduction of tax, Peter outlined HMRC’s plans to significantly reduce this number going forward. One of the causes of the current problems is that 70% of new starter data is now received on P46s rather than P45s so leading to a potential incorrect tax code for that tax year if the P45 data never gets added to the employee’s record.
The first hour of the forum centred on the proposals to submit Real Time Information (RTI) to HMRC each time that a payroll is run. For employers paying by BACS, an additional file of earnings’ data would need to be developed to submit to HMRC which would have to include
- additional employees who had been processed that run but had, for example, zero or negative net pay calculated, and
- additional data for all employees, including hours worked.
A number of practical questions were raised in response:
Q: How would cash or cheque paid employees be catered for?
A: an alternative submission channel would be developed potentially via the CD-ROM
Q: Who will pay for the extra BACS costs generated by this file?
A: HMRC
Q: Will there be a recall facility?
A: Yes, if a salary is recalled, that part of the earnings data will also be recalled.
Q: Why aren’t HMRC proposing to develop the existing Gateway for this data rather than use BACS?
A: BACS could easily accommodate the additional volume; the Gateway could not without significant redevelopment and impact on other government departments who use the service for online transactions.
Q: Do HMRC realise that some of the data items they are asking aren’t held on payroll systems or may not be held at all for example: hours worked and holidays taken for monthly paid staff?
A: We would need to go back to the other departments who have asked for this data to challenge why it is needed (Editor’s note: it is likely that this is a DWP requirement to ascertain tax credit entitlement)
It was also pointed out to HMRC that many employers who use a bureau send the BACS file themselves but would expect the bureau to send the earnings data as part of their outsourcing contract. There was also a concern expressed that, as a result of developing the new data file, software licence fees would increase particularly for legacy systems and that developers R&D budgets would be squeezed even more.
Many of the current 6m open cases are due to benefits not being coded out correctly so the audience therefore asked why the payrolling of benefits was outside the scope of the proposals. HMRC said that the industry (Editor’s note: particularly accountants as they have an income stream from P11Ds) had been unsupportive of payrolling but now many saw it as needing to be part of this RTI solution.
The second part of the evening focused on the radical proposal for employers to submit gross taxable pay to HMRC and for them to calculate net pay for onward transmission to the employee if paid by BACS, or back to the employer for cash/cheque paid employees. There were very strong feelings around the business critical nature of payroll and that therefore employers were uncomfortable with handing this over to HMRC. The following questions were raised:
Q: If RTI works and the new NPS system better collates sources of income, why do you need to consider centralised deductions (CD)?
A: If the population of taxpayers for whom PAYE is incorrect is still too high for Ministers after RTI and NPS have bedded in, HMRC need a phase two plan.
Q: BACS isn’t foolproof – it has failed twice in the last ten years. How would HMRC resource the employee contact if there was even a rumour of there being a delay?
A: They would release up to 9,000 staff from current processing duties as a result of centralised deductions and would move them to customer contact roles.
Q: How do HMRC propose to handle AEOs that require attachable earnings and third party deductions?
A: HMRC would aim either to give the attachable earnings back to employers to calculate (Editor’s note: it is not clear how this would fit into the processing window) or they would take on AEO processing and plan to simplify all the definitions of earnings and methods of collection in discussion with HM Courts Service and C-MEC. Employers would tell HMRC the total value of the third party deductions and these could then be taken into account in calculating the net pay.
Q: How will employees know what they have been paid?
A: Employers will provide a breakdown of third party deductions, HMRC will provide online access to the employee’s tax account so they can see the HMRC calculation.
At the end of the evening the attendees voted on the proposals. All were in favour of RTI and similarly were united in their opposition to CD.
If Ministers decide to take the proposals forward, a consultation document will be published at the time of the spending review on 20 October.
(Contributed by Kate Upcraft, Payroll writer and lecturer, ISIS Support Services Ltd)
