Warning for small firms as shake-up of PAYE looms

Rachel Andrews, payroll specialist at the Forum of Private Business (FPB) said: “If I had any last-minute advice for businesses, it would be to have everything ready to go. So employee addresses, date of birth and the correct NI number. The date of birth is more important now than previously. It has to be correct.”

She has spent the last two years working with HM Revenue & Customs on a pilot scheme for Real Time Information (RTI), the “son” of PAYE, reports The Telegraph.

From Saturday employers will have to provide information to HMRC every time they pay an employee rather than annually. HMRC says employers will benefit from much simpler requirements for PAYE information, with the abolition of the extensive annual tax return.

HMRC insists that trials of the system have gone well and that the all-important software programs are operating smoothly. But with uncertainty about the state of preparedness among the smallest businesses, HMRC is providing breathing space for employers with fewer than 50 employees. They will be allowed to submit monthly rather than daily reports until October.

The concession has had the embarrassing knock-on effect of delaying the introduction of Universal Credit, the single payment at the heart of the Government’s contentious welfare reforms.

Universal Credit rolls up several existing benefits into a single package and is designed to ensure that claimants are better off working than jobless.

The more detailed information available to HMRC from the RTI system means payments can effectively be adjusted weekly rather than annually, depending on what claimants are earning from employment.

HMRC will use the five months to monitor the way RTI is working in the ranks of the bigger employers and try to ensure that an estimated 4m micro businesses given more time are prepared for their new October deadline.

Studies by the FPB and other small business organisations continue to show a mixed pattern about the state of readiness for RTI. Almost one in five of the FPB sample classified themselves as “not prepared”.

The Association of Accounting Technicians has similar evidence. Its research showed one in three small businesses were in the dark about RTI, while 30pc did not know whether their payroll system could cope and 35pc were worried about an increase in costs.

HMRC estimates that businesses will end up saving £300m in reduced administration costs when RTI is up and running and result in making the new system faster, easier to run and more accurate than the 70-year-old PAYE operation.