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Employers want a simpler PAYE system

September 1, 2014


Research into the post-RTI PAYE landscape carried out by HMRC has found that employers would like to see a simpler PAYE system which assists them to provide support to their employees.  HMRC has published its findings, Understanding PAYE Delivery Partners, today. The three main aims of the research were: to understand how employers manage the administration of expenses and benefits in kind; to understand how PAYE works for employers, payroll providers and individuals and to understand how RTI has affected payroll companies. 

The first phase of the research focused on how businesses manage expenses and benefits in kind and how this could be improved, particularly whether these items could be more widely handled through normal payroll processes.  It was found that for employers with few expense claims to handle and with simple affairs, the management of P11Ds was fairly straightforward.  The minority of employers who do currently payroll expenses and benefits were able to “identify very clear advantages for themselves and for their employees” of doing so.  The research suggested that “mandatory reform” would be the fastest way to increase take up of payrolling BiKs and expenses, as many of the employers questioned saw “little reason for the change or incentive in doing so at the moment”.  The report does not say whether HMRC is currently considering mandatory reform as a way of increasing the usage of payrolling expenses and BiKs.

Phase 2 examined how the operation of the PAYE system works for employers and payroll companies.  In general, where a workforce is stable with a single source of income, PAYE does work.  However, changing patterns of work mean that this type of workforce is no longer so widespread, and employers “feel that the responsibility of resolving problems lies with them”, for example, when an employee is taxed using the wrong code.  Employers were found to assist employees with tax issues over and above what is required of them because they feel that “employees do not understand the PAYE system, their role in it, or how tax is calculated…  PAYE’s success is that employees can get by knowing very little, relying on the goodwill of employers.”  There was no appetite among those surveyed for a more formal definition of the nature and method of support that should be given to employees – employers gave support more willingly because they were not formally required to do so.

The report found that there were three key areas employers wanted to see in an improved PAYE system, that:

(i) it is digital, founded on education for individuals;
(ii) it is simplified. A digital online portal that allows all parties line of sight; HMRC would own and host the account; employees would have full access and employers, limited access. The online account would go some way and be a necessary tool to increasing engagement and education and helping employees retain responsibility for their tax.
(iii) The system would benefit from simplification, for example the removal of paper forms and the ‘de-coding’ of tax codes.

The final stage of the research looked at RTI’s impact on payroll companies with 25 respondents taking part in telephone interviews with researchers.  All those companies who took part said that RTI represented an improvement to the way PAYE is collected and felt that it was the right thing to do.  Most respondents felt that reporting PAYE in real time was becoming a matter of routine, however the report also states that “payroll companies felt that in practice, RTI was ‘not quite there yet’ and there were some remaining challenges”.

The challenges reported will be familiar to most from previous posts on – respondents noted that “a solution to reconciliation issues would be enabling them to view the Tax Dashboard as this would give them greater visibility of the data”, helping to avoid the RTI information gap.  Respondents also expressed concern over misallocated submissions, lengthy receipt times and the reconciliation process where payments did not match reports (although it may that this has now improved, as the research was carried out in February-March 2014).  The payroll companies interviewed also expressed concern about a “risk to trust” where HMRC communicated directly with an employer regarding an apparent ‘underpayment’, “particularly when it turns out that the correct payment had already been made”.

Payroll companies also noted that they have not experienced a large increase in their client base due to RTI, although they had encountered the view that PAYE is now more complex from employers.  The research was carried out before the first end of year under RTI so the experience of this process is not measured in the report, but respondents had mixed predictions on how their workload would be affected with some predicting that there would be no reduction in their workload because some end of year processes still remained.

It appears that fewer than fifty respondents were consulted by HMRC in each phase of the research.

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