23 February 2010

On behalf of the Institute of Payroll Professionals (IPP), Karen Thomson, Associate Director of Policy, Research and Strategic Visibility, has said:

“The proposal put forward by the Conservative party is for HMRC to calculate the tax and National Insurance (NI) due on employment income. So what could this potentially mean?

1. Employer submits gross pay information to HMRC via the BACs system;

2. HMRC calculates the tax and NI due (not clear if employer’s liability also);

3. HMRC sends back the net pay to the employer.

The report suggests that this will save employers copious amounts of money due to them not calculating the tax and NI, but is this the case?

IPP considers the following:

· Research shows that the main difficulty with business and payroll is deciding what is taxable, rather than calculating the amount (Karen Thomson dissertation research 2010);

· Although we would agree that electronic communication is a proven, reliable service for employers; if PAYE is not broken why fix it? We appreciate the problems of late with the NPS and incorrect tax codes but is this a matter of inadequate funding for the systems or insufficient resources for HMRC to carry out their duties effectively?

Our initial reaction to the proposals was provided in a BBC Radio 4 Money Box interview on Saturday, 20 February. Immediately there are areas that would require further exploration and these are:

· Gross pay – made up of many elements some taxable others not how would HMRC deal with this?

· Pension contribution deductions

· Payroll Giving contributions

· Other deductions such as attachment of earnings, union subs etc

· How would it work for salary sacrifice where the employer uses the payroll system to reduce the monthly amount rather than enter the actual amount?

· If money taken directly for employee tax and NI how would it work for employer NI

· Cash flow issues as business has developed its processes around the current system

· Late leavers i.e. now an employer might do a BACs recall and re-process manually how would this work?

· How quickly would HMRC turn it around so that the employer could deduct items from net pay such as a company loan and of course provide a payslip?

· The UK business has invested in payroll software – what happens to these businesses?

· The UK business has invested in specialist tax and payroll professionals – what happens to these people?

Dissertation research undertaken by me is showing that calculating PAYE and NI is not a problem for business, the areas of concern are in fact around benefits and expenses and understanding the rules of when something is or isn’t taxable and the method by which it is reported.

The IPP believes that there are better ways to improve the PAYE system including providing sufficient funding to HMRC to improve their systems and ensuring sufficient staffing to assist customers.

The IPP Policy team hopes to liaise with shadow ministers on this subject soon. In News On Line next week, the Policy team will be running a survey to test IPP member’s views on this. “