ICAEW has warned that the new requirements, known as Real Time Information (RTI), are at best unrealistic and at worst impossible, creating a new burden on businesses.
Frank Haskew, head of ICAEW Tax Faculty, said: “We are particularly concerned about the impact this will have on smaller businesses, which are the lifeblood of the UK economy and essential if the UK is to continue to grow.”
PAYE is the system that HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance Contributions (NICs). Currently, employers have to deduct this from their employees’ wages and pay HMRC either monthly or quarterly.
Under RTI, an electronic return will have to be made to HMRC ‘on or before’ a payment is made to an employee. If the return is not made on time then the employer is potentially liable to penalties. While complying with the RTI requirements may be relatively straightforward for larger businesses, many smaller businesses will find it difficult and sometimes impossible to cope with.
Take the following examples:
Businesses employing low paid workers who have to receive advances of salary before payday in order to live. Under RTI the employer will have to submit an RTI return within seven days of an advance of salary being paid.
A pub landlord calls in some extra help as he has a busy night ahead. Currently many such employers would only run their payrolls monthly but under RTI they will have to do so within seven days of such payments being made. This is a significant increase in reporting obligations.
Frank continued: “The above examples show that the ‘on or before’ requirement – even with the relaxation to “within seven days” – will not work for many businesses. It’s not yet clear what HRMC will do if faced with widespread non-compliance by employers – will they apply penalties or turn a blind eye? Either way, the requirement could inflict serious damage to the credibility of the UK tax system.”
HMRC is now proposing extra time for employers in some cases but this would only be an extra 7 days. The ICAEW has called for employers to be required to file monthly.
Haskew concluded: “The ‘on or before’ rule even as amended completely ignores the way the real world works. It will add significantly to compliance costs and burdens for many small and medium sized businesses. Even if all employers complied with the ‘on or before’ requirement, it is difficult to see how HMRC could reconcile easily all the information it would receive. We therefore propose that there should be a single RTI return on the 19th of the month following the month of payment – this is the same as the normal PAYE due date and will be familiar to all employers.”