In terms of the number of employers now operating RTI and the ability of HMRC’s system to cope with the volume of transactions, the biggest change to PAYE in seven decades seems to be going fairly well. Lessons appear to have been learned from earlier on line service problems, with RTI being tested and steadily expanded through the pilot phase last year. Some problems were inevitable with a change on this scale however.
The most significant structural problem is perhaps the on or before rule
There have been a number of issues with annual schemes and with HMRC chasing amounts that were not in fact due. Some problems have arisen with HMRC’s Basic Payroll Tool. There have also been a number of issues around the treatment of harvest casuals. These have all been highlighted in Tax Faculty news items and I would hope to see them all resolved over the next few months.
The most significant structural problem is perhaps the on or before rule. This requires employers to report payments made to employees on or before the time those payments are made. For many employers this is virtually impossible. For others it would be possible but costly. HMRC acknowledged the problem late last year and introduced some small relaxations in very limited circumstances. They can be found here.
These relaxations still leave some significant practical problems, particularly for small employers. Take the first example, “ad hoc payments made outside of the regular payroll”. If an employer runs the payroll monthly but regularly gives one employee some cash on a Friday to enable them to do their shopping and adjusts it on the month end payroll, is that caught or not?
Based on the guidance it would appear to be, as “payments on account of earnings are not considered to be ad hoc where it is established practice for some earnings to be paid outside the normal payroll cycle”. That means that the employer will end up running the payroll 52 times a year instead of twelve. If the employer treats this as a loan however, repayable on the normal payday, it is arguably not a problem and the employer can carry on reporting monthly. It is easy to envisage some very common situations – particularly with small businesses such as pubs and corner shops - leading to serious practical difficulties.
In March ministers accepted that the practical difficulties faced by small employers needed to be recognised. A temporary easement was introduced which enabled some employees to report monthly rather than on or before each payment to an employee. The easement was to run to 5 October 2013 but in June it was extended and now runs to 5 April 2014. The easement permits employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, to send information to HMRC by the date of their regular payroll run (but no later than the end of the tax month in which the payments are made).
The extra burden on small employers of complying with the on or before rule is a cash cost if they use an agent or bureau to handle their payroll and at the very least a time cost if they don’t: increasing the payroll frequency inevitably increases the burden. Perhaps we should just see this as an additional government-imposed income stream for payroll providers and be grateful.
A recent survey by Sage, however, found that while 73% of practitioners said that clients sought advice on RTI, only 17% managed to achieve fee growth as a result. 34% of accountants in practice said RTI actually led to reduced profit margins on their payroll services. In short the profession is picking up part of the tab for RTI (because we are trying to help our clients) and the balance is being borne by employers.
What will happen when the easement ends on 5 April 2014? Will all employers willingly move to reporting on or before the time of payment and accept the increased compliance costs? Will we see employers forcing employees to move from weekly or fortnightly payment to monthly in order to minimize the burden of reporting? Will we see a debate about what is a loan and what is an advance, about what is regular and what is ad hoc? Will employers simply be economical with the truth about dates of payment? Will ministers recognise the issue and make allowance for it in the regulations?
Whatever your view, you have a chance to influence what happens next. If you have concerns about the burdens RTI places on small employers and particularly if you fear that these will increase when the on or before easement ends next April, please take some time out to complete the survey HMRC is conducting. The results will be used to guide ministers when they make their decisions. You can find the survey here
You do need to have some information to hand when you complete it, including:
• How many payroll clients you act for
• How many of your payroll clients pay their employees weekly, fortnightly, four weekly, monthly, quarterly or annually
• How many of your payroll clients have (a) increased or (b) decreased the pay frequency of employees as a result of RTI
• How many clients make additional payments to employees between normal payroll runs
• Number of clients for whom on or before is difficult in employee ranges 1 – 4, 5 – 9, 10 – 49, 50 – 99, 100 – 250 and greater than 250
Investing fifteen or twenty minutes now could save you and your clients many hours of time and associated cost in the future. I would encourage you to make your voice heard.
Paul Aplin is chairman of the ICAEW Tax Faculty Technical Committee and a partner with west country firm A C Mole & Sons. You can follow him on Twitter at @PaulAplinOnTax