Image may be NSFW.
Clik here to view.
Backwards step
In August last year we talked about HMRC’s proposed, ahem, improvements to the PAYE system. We also told you how to prepare for them, so it’s worth a quick read.
To recap: at the moment, companies tell HMRC how much they’ve paid their employees at tax year-end. Starting soon, they’ll have to do it at the time they pay their employees instead.
This is because of HMRC’s Real Time Information (RTI) reform. It’s the single biggest change to PAYE since, well, ever.
(If this is still news to you, you’d better read about it on HMRC’s website. Take our word for it, it does affect you.)
On the face of it, it doesn’t seem like a big change. But it is. And for some businesses – small ones particularly – its going to be a right pain.
Backwards thinking
In fairness to HMRC, it had to do something about PAYE.
The ancient code-based system simply couldn’t keep up with today’s job market. People change jobs more frequently now than they did when PAYE was introduced 70 years ago. Anyone who’s had a tax bill can vouch for the fact that it was a bit of a mess.
RTI is designed to streamline the reporting process and make tracking, and adjusting for, small income changes easier. In theory, not a bad thing.
The problem is that it’s been designed to streamline the process for HMRC, not businesses.
At a time when the economy needs all the help it can get, initiatives like this do more harm than good. Forcing companies to divert time and money away from doing business is hardly a recipe for growth.
We’re really in trouble if HMRC think the best way they can help is to make us shell out for new software, spend time drawing up new processes and have valuable staff tied up in more red tape, more often.
Back in black
As always, it’s small businesses that suffer the most. Large corporations have the resources to cope with this kind of thing. Small ones don’t.
The impact will be more than just financial too. The bureaucracy involved is likely to cause more problems than it solves.
Is it practical for firms using casual labour to process tax information at the end of every shift, for example? Moving to pay staff monthly is easier for the company, sure, but harder for those who rely on getting paid weekly or even daily.
Surely this opens the door to more cash-in-hand, I-won’t-say-anything-if-you-don’t, black economy working arrangements.
And what happens if the person responsible for processing the information isn’t around? What happens if someone’s busy and forgets to press the buttons? More people will have to be trained to use the new software, or the firm will have to send their info to HMRC late, thereby incurring hefty fines (of course).
Back to basics
Steve Crouch, financial director at online accountants Crunch Accounting said: “There’s still time to get organised, but SMEs need to be fully compliant by April 2013. Our own survey shows that only 19% of small businesses are aware and prepared for RTI.
“These stats show that there’s still not enough information from the government about this huge change to the payroll system. Talk to your payroll provider if you’re unsure or if they haven’t yet informed you about changes.”
HMRC insist that their trials have been “successful”. Fair enough but forgive us if we’re a little sceptical. Trials are one thing; making it work in practice is something else. There are bound to be holes.
Put simply, if the government is serious about removing business barriers (Red Tape Challenge anyone?) and getting the economy moving again, it has to make life easier not more difficult.
Anything that isn’t part of the solution is, as we all know, part of the problem. It’s not difficult to see that with a triple-dip recession looming, we desperately need more solutions.
Otherwise we may find the “engine room of the economy” has stalled for good.