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RTI causes SME compliance costs to rise

July 8, 2013

 

A research project undertaken by the Forum of Private Business has identified RTI as the key reason for increased SME compliance costs since 2011.  The body represents small businesses and undertakes research and lobbying with and on behalf of its members.  The research shows that spend on compliance rose to £18.231 billion from £16.804 in 2011, an increase of 8.5%.  Money spent on tax compliance accounted for £6 billion of the total, the largest outlay for small firms, followed by employment law and health and safety.  Tax compliance was also the biggest outlay in 2011 when the survey was last undertaken by the Forum.

The FPB’s findings were based on the survey of 4,000 Forum of Private Business members during May and June 2013, the same sample group size as for its 2011 and 2009 surveys. It represents the largest survey to date of the costs of RTI. PayeRti.org understands that HMRC never undertook any comparable evidence based data analysis when arriving at its own projected RTI cost predictions.

The report’s findings are highly significant because they disprove HMRC’s original claim that RTI would deliver annual savings to UK businesses of £300m from 2014-15 with initial costs to business of £120m in the first 2 years (starting from 2012-13) only. HMRC has never published the basis of its predicted cost to UK business of £120m which it said were calculated using its Standard Cost Model.

The survey found increased SME compliance costs were largely attributable to the introduction of RTI.  One member was quoted in the report on the difficulties presented by RTI:

“Biggest problem is HMRC.  Ill-thought-out regulation ... put into operation with poor/non-existent support and IT which does not work.  For instance I spent about 7 hours trying to file end of year payroll returns because HMRC set it up incorrectly and was unable to access their helpline for 2 days.  Each time I phoned was told ‘all operators are busy phone back’ gave up after 20 attempts and wrote - still awaiting a reply!”

There are three key areas of cost relating to the impact of RTI examined in the report: internal time spent on PAYE/National Insurance and other tax matters; external costs from taxation specialists and accountancy fees; and internal time spent on employment matters such as salaries and holidays.  The Forum’s research found that £2 billion worth of time was spent on PAYE/NI matters in 2013, and that general payroll administration cost £1.32 billion, a 14% increase since 2011.

Of the three cost areas, tax specialist and accountancy fees represented the highest cost to businesses, at £4 billion - an 11% increase on 2011.  In a statement on their website, the Forum of Private Business’s policy adviser Robert Downes said there had been ‘a huge increase in spend on external contractors.  We believe this is largely down to RTI, and firms having to pay a payroll specialist to manage their employees’ PAYE bills’.

The Forum calculated that the total cost of RTI to businesses totalled some £318 million.  This figure contrasts sharply with the impact assessment figure HMRC presented in its briefing ‘Real Time Information (RTI): Improving the operation of Pay As You Earn’ (March 2012), which was £120 million.  The Forum’s report pointed out that HMRC’s impact assessment figure omitted the cost of some significant factors such as payroll software (estimated by the Forum at £300 per business). 

HMRC’s own cost estimate for RTI indicates an average cost of RTI to a business (based on HMRC’s figure of 1.6m total employer PAYE schemes) of £75 over two years, compared to the FPB’s estimate of the one off cost of an RTI payroll software upgrade of £300 and HMRC’s RTI penalty regime for inaccurate returns of £100 for each occurrence from April 2013.

Downes said that ‘Government number crunchers never seem to get their sums correct’, and warned that pension auto-enrolment was likely to be a further expensive change for SMEs and micro businesses to get to grips with.

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