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Many small firms will be forced to overcome significant difficulties when submitting their payroll in real-time in spite of official moves to relax the forthcoming obligations, the Chartered Institute of Taxation (CIOT) has warned.
The professional body expressed serious concerns about the financial and administrative burdens created by the real-time information (RTI) system for PAYE, which entered its final test phase last week and will become compulsory for most employers in April 2013.
Guidance published this week by HMRC relaxed a number of RTI conditions but the changes are narrowly defined, claimed the CIOT, and small businesses will still face a major increase in costs.
The institute’s Colin Ben-Nathan welcomed the Revenue guidance as a “step forward” but added that the requirement that information be reported on or before payment will lead to increased costs for firms that remunerate their staff members weekly.
Affected organisations will be forced to outsource their payroll or have a bookkeeper visit each time, instead of just once a month, with a corresponding increase in annual cost, typically from about £250 to around £1,000, claimed Ben-Nathan, who chairs the CIOT’s employment taxes committee.
He insisted that the problems go beyond costs, and even larger firms will elements of the ‘on or before’ obligation impossible to handle.
“For example, where an expatriate has been awarded shares, the employer will often not have the information to be able to file in time even within the extended deadline. This leaves the employer facing a penalty and reliant on HMRC’s subjective judgement under the reasonable excuse procedure.”
The requirement for employers to submit PAYE information in real-time has been relaxed for some employers, who will be allowed up to seven days to report where:
- payments are made on the day of work where it is impractical to report in real time, such as a crop picker paid in cash at the end of the day, when their pay is based on how much they have picked, or a casual worker in a pub paid at the end of the night;
- payments are made to employees for whom employers do not have to maintain a deductions working sheet (form P11).
There will also be additional time to report payments of benefits and expenses subject to Class 1 National Insurance contributions but not taxed under PAYE. Firms will be permitted to report when the next regular payroll is run, or 14 days after the end of the tax month in which the payment was made, whichever is earlier. Notional payments can already be reported to the same time scale.
The Revenue will publish draft regulations for comment later this month, when the department will also issue guidance on the reporting of ad hoc advances of pay and a statement of operational practice on reporting of payments made by expatriate employers and those operating share schemes
The CIOT said it continues worry about a number of other aspects of RTI, including the requirement to report PAYE online, when many small employers do not routinely use web-based systems, and the changes to the treatment of self-employed people, who traditionally prepare accounts and make returns of income on an annual basis.
The institute’s anxiety comes after a survey by the Federation of Small Businesses found that a quarter of small and medium-sized enterprises have not heard of RTI, a half do not know when the system will come into effect, and one third are uncertain how it will affect them.
