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UK business will be £300m better off, says HMRC’s RTI Impact Assessment

March 15, 2012

The assessment covers the approximately 1.6M employer PAYE schemes in the UK required by law to implement RTI.

HMRC admit that in advance of the RTI pilot they have better evidence on the impacts of removing current reporting obligations than about those created by RTI.

This includes the abolition of the joiners and leavers forms P46 and P45 forms (although the P45 form will still be provided to departing employees) and the P35, P14 and P38A end of year reconciliation process.

Using its Standard Cost Model to estimate the costs to employers of these current reporting obligations, HMRC puts the savings achieved by their abolition at approximately £330M per year from April 2014, the first full year of RTI. This indicates a current cost of £206.25 to run annual PAYE year end.

HMRC says that the future costs to employers of operating RTI, in what it calls a ‘steady state’, will be £30m per year: A cost of £18.75 per PAYE scheme.

This means that HMRC estimate the net on-going annual impact on employers as a £300 million saving.

HMRC recognises there will be one-off transitional compliance costs for employers to ready themselves to submit RTI.  It estimates the average costs to verify employee data and staff training at £20 and £50 per PAYE scheme respectively, but does not allocate an estimate to the central transitional cost of updates to payroll software and payroll processes in general. Surprisingly, HMRC says only £10m of these compliance costs will be incurred in 2012-13, the period in which employers are required to have readied their payroll operations for RTI, but £110m of compliance costs will fall into 2013-2014, by which time HMRC expects RTI to be up and running for most employers. This is not explained.

HMRC makes clear that UK payroll software producers, which HMRC is reliant on to deliver RTI, can be expected to pass on the development costs of implementing RTI in their products to employers in the form of higher software charges. It also concedes that some employers are expected to move to using commercial payroll software for the first time, at a cost it puts “in the region of £300”. HMRC points out that employers with 9 or fewer employees can use HMRC's free Basic PAYE Tools, although ICAEW have identified that this HMRC alternative does not produce employee pay slips.

HMRC accept its figures may change as what it calls “business impacts” are understood better during the pilot phase, but still expects the final impact to be a significant net saving. Importantly, HMRC has committed to validate both its transitional and on-going RTI cost estimates, made using its Standard Cost Model.

The impact assessment, acknowledges that the current burden of PAYE falls disproportionately on small employers.

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