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Meeting with HMRC re PAYE insourcing proposals

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Tom McClelland

Tom McClelland

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Feb 10, 2008
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Looking Over Your Shoulder
I'm going to an HMRC meeting about the proposals to modify the way that the PAYE system works. There is a document here about their plans.

Broadly there are 2 phases.


  • Phase 1, April 2012, real time reporting of payroll information to HMRC, P45s and P46s to be dropped as they'll no longer be required. Tax codes issued will reflect the RT information from employers (eg 1 person 2 jobs = BR)
  • Phase 2, April 2015, statutory deductions outsourced to HMRC, who will calculate each employee's PAYE, NI, Student loan, attachments(?) etc. Employers will pay HMRC the employee's gross pay, and HMRC will pass on the employee's net pay direct to their bank account, keeping hold of the deductions in real time, so employers won't have a bill on the 19th of the following month.
The ostensible idea is to relieve employers of the burden of being PAYE/NI tax collectors, and to reduce the reporting strain on employers at PAYE year-end. The presumed subtext is to gain control of the large no. of situations where employees claim benefit while working or have 2 jobs, and HMRC doesn't find out until year-end.

There should be an opportunity for discussion in the meeting, so if anyone has any comments or thoughts about the plans that they'd like passed on I guess an opportunity might arise.
 
What about employer NIC? Would the employer calculate that and remit to HMRC with gross wages? Rather defeats the idea of HMRC doing everything. Or would they calculate it with the payroll and have it paid on the 19th?

What about things like telephone rental that aren't taxable but attract full Class 1 NIC? Will the system deal with that?

What about non-statutory deductions - specifically pensions? Are payments to stakeholder schemes statutory (given that the employer must deduct it) or non statutory? ;)

In terms of non-stat deductions, what about advances on salary? Will these be deducted or will the employer have to try to get it back from the employee after payment?

What about non taxable extras - expenses and the like. Will the Revenue pay these as they are customarily paid with salary, or does the employer have to set up a new system to deal with these

What is their lead time - how long in front will they need the information to get the payment to the employee on the correct date?

What is the process for dealing with amendments? I.e. before the due date it is realised that the hours are wrong and the gross pay needs to be amended?

Given the history of problems with large scale government systems over many years, what makes the introduction of this system different in that it is going to work first time for millions of employees?

Will there be a dedicated telephone line for each employer so that employees can telephone the Inland Revenue and rant if their wages are delayed?

Will the scheme offer directors the choice of NI methods?

Was this idea thought up by somebody on this planet?
 
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David Griffiths said:
Was this idea thought up by somebody on this planet?
Click to expand...

:D:D:D:D

I would like to see the proposed detailed implementation plans for this.

IMO for this gov. department to prove such a system will work in the real world it should be piloted in ALL public sector departments first - starting with Number 10.

Once they have a track record of successfully implementation then they can roll it out!

Mind you I suppose in gov. departments how many staff changes do they actually have :rolleyes::rolleyes:
 
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David Griffiths said:
One advantage of this is that it might, just might, make HMRC realise the volume of worked that they've dumped on employers!!
Click to expand...


I love your positive outlook.

I wonder just how many people would be confident about HMRC paying them each month?
 
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Tom McClelland said:
Phase 2, April 2015, statutory deductions outsourced to HMRC, .... Employers will pay HMRC the employee's gross pay, and HMRC will pass on the employee's net pay direct to their bank account, keeping hold of the deductions in real time, so employers won't have a bill on the 19th of the following month.
Click to expand...

For any employer struggling with cash flow that will be a blow, as it means finding the gross pay each week/month rather than net. Hands up those who have never made use of HMRC's rolling credit or stretched the 19th by a day or two on occasions. (Yes, I'm aware that online payment is later).

Effectively it will be a reduction in working capital for each and every employer in the land which will have to be found from elsewhere.
 
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KM-Tiger said:
For any employer struggling with cash flow that will be a blow, as it means finding the gross pay each week/month rather than net. Hands up those who have never made use of HMRC's rolling credit or stretched the 19th by a day or two on occasions. (Yes, I'm aware that online payment is later).

Effectively it will be a reduction in working capital for each and every employer in the land which will have to be found from elsewhere.
Click to expand...

In all fairness (and full disclosure, I have stated repeatedly that phase 2 is nuts IMHO) I suppose the detail may be different. HMRC may inform employers of how much they need to pay to meet employee's net pay on payroll date, and then request the balance including emplyoyers NI on the 19th of the following month.
 
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Tom McClelland said:
In all fairness (and full disclosure, I have stated repeatedly that phase 2 is nuts IMHO) I suppose the detail may be different. HMRC may inform employers of how much they need to pay to meet employee's net pay on payroll date, and then request the balance including emplyoyers NI on the 19th of the following month.
Click to expand...

That would mean that they'd take on all of the work, but wouldn't gain in any other way, other than knowing how much employers haven't paid them by the 19th! Don't see that they've planned it that way.
 
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What about salary sacrifice arrangements? How would they handle those? It sounds like a stupid idea, and a complete nightmare, cant see it ever working properly. As someone said earlier how would they handle queries/underpayments, and so on? What if someone wants an advance? Just cant see it working.
 
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Every time they bring in yet another harebrained scheme such as this, I thank my lucky stars that I have now retired :cool:

I'm also glad that I'm not expecting HMRC to get my salary payments right - is it 6million letters they're sending out at the moment about under/over payments. Having said that I guess the new scheme is supposed to stop these happening :|
 
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It is safe to assume that the release of stories about millions of under/over payments isn't a coincidence. We're being primed for the government spending and assumption of control by HMRC to "solve these problems".
 
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Tom McClelland said:
It is safe to assume that the release of stories about millions of under/over payments isn't a coincidence. We're being primed for the government spending and assumption of control by HMRC to "solve these problems".
Click to expand...

Solve them - they created this in the first place by the blundered new PAYE implementation. :cool::cool:

So we are now supposed to have just blind faith that this massive systems implementation will work.

Will there be an SLA in place - so of HMRC get it wrong they pay compensation?

Phase 2 is just the worse, most stupid idea I have ever heard and that is being polite :eek::p
 
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Tom McClelland said:
It is safe to assume that the release of stories about millions of under/over payments isn't a coincidence. We're being primed for the government spending and assumption of control by HMRC to "solve these problems".
Click to expand...

That's an interesting take on things. Given that these millions of errors are down solely to HMRC, it's not going to give many people confidence that they are capable of running a much bigger system to very short and urgent deadlines.
 
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David Griffiths said:
That's an interesting take on things. Given that these millions of errors are down solely to HMRC, it's not going to give many people confidence that they are capable of running a much bigger system to very short and urgent deadlines.
Click to expand...

In these stories they're carefully not pointing out that most of the over/under payments can be laid at their door and would be prevented/mitigated by correct operation of the systems that they already have.

Whenever big stories about government departments appear in the BBC and the newspapers you have to be cynical and ponder whose agenda they are promoting... Such stories don't appear by accident. They've put these stories into the public domain very prominently and they're doing it deliberately, so that they can make the big announcement in October/November about New Systems that are going to sort it all out.
 
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Tom McClelland said:
Whenever big stories about government departments appear in the BBC and the newspapers you have to be cynical and ponder whose agenda they are promoting... Such stories don't appear by accident. They've put these stories into the public domain very prominently and they're doing it deliberately, so that they can make the big announcement in October/November about New Systems that are going to sort it all out.
Click to expand...
One interesting aspect of this issue is different people's perception of cause of the problem - as that affects what you think needs to be 'fixed'.

So what is the reason for six million people underpaying/overpaying tax? Is it mainly caused by the new PAYE computer system, or has the new PAYE computer system merely helped to identify a problem that was already there. Is it because the previous government and/or HMRC management mismanaged the implementation of the new computer system, or is it because PAYE in its present form as a whole is outdated.

In a BBC interview, Junior Treasury Minster David Gauke seemed to blame the PAYE system - the fact that PAYE was designed in a different era when people's working patterns and reward packages were very different. I notice that he didn't even take the 'open goal' opportunity of blaming the previous administration for the problem (which surely every new government does for the first two or three years that they're in power!).

So I think I'm in agreement with Tom. Speaking for myself, I would not be surprised if the government's conclusion is that the new PAYE computer system has merely highlighted the need replace PAYE completely. And the way to replace it is with the new centralised 'insourcing' system they've proposed.
 
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They'd decided this was a good idea before the election. But who decided that, and the reason why it is a good idea appears to be somewhat nebulous and is apparently changing over time. It started out as "relieving hard pressed businesses from the burden of calculating PAYE/NI", but as that really won't wash (I've yet to talk to any payroll professional who thinks that anything in these proposals will make life easier for employers) the justification is now shifting to centralised avoidance of errors.

Whatever the reason, this represents a gigantic money and power grab by a state monopoly, which will funnel vast income into whichever major IT companies get selected to implement the project.

Cui Bono?
 
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I quite agree with you Tom that we are being primed for this solution to be touted as the Knight in shining Armour. The headline of the Independant today was "Is our tax system fit for purpose?"

You can almost guarantee that the news over the coming weeks will put the blame squarely with employers, stating that it is their fault for not operating PAYE correctly - not changing tax codes when P6s are issued, not submitting P46 and P45s online quickly enough and general mismanagement. Then the "Knight" in the form of HMRC will be wheeled out as the saviour as "wouldn't it be easier if it was all done by the organisation who has access to all the information".

As payroll professionals, we all know it's HMRC that gets it wrong most of the time. I know because I spend a large proportion of my working life sorting out their errors. We would all like to be able to put people on a D0 tax code when we know they are a higher rate tax payer, but because of the inflexibilities in the current system we have to put them on BR and deduct half of the tax the we know will be due.

I get so angry about this as I have spent the last 5 and a half years building up a business that really does relieve employers of their payroll burdens. Not a half-baked idea that is more about securing HMRC jobs than actually doing a better job. I guess I should watch out for the company who is awarded the contract to actually provide this centralised service (lets face it - HMRC couldn't afford to employ enough people to cope) and send them my CV.
 
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adamsgi said:
. I guess I should watch out for the company who is awarded the contract to actually provide this centralised service (lets face it - HMRC couldn't afford to employ enough people to cope) and send them my CV.
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Quite. Presumably it doesn't matter about the small businesses that they will put out of business with this badly thought out plan.
 
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There a number of concerns that i would have:

  • Payslips - presumably HMRC would be sending out the employees payslips for them??
given that most of their post takes 2- 4 weeks to arrive (always the postman at fault!) It will be several weeks after payday before employees realise that mistakes have been made, coupled with the fact it takes 6- 10 weeks for incoming post to be opened notification of such errors will be slow to be corrected
​
  • employee changes - as noted above incoming post isnt dealt with quickly enough for employee / employer changes to be implemented, there is little chance of these details be changed over the phone
  • Payslips again - the cost of sending out payslips weekly / monhtly and P60's etc for millions of employees will be huge - will they actually be gaining anything
  • deductions and salary sacrifices etc - fully agree with everything everyone else has said here
  • with the economic crisis and government spending cuts is the system going to built correctly? wouldnt the money be spent better elsewhere?
  • assume this would be a free service for employers or would they have to pay for it? what about the thousands of accountants / bookkeepers who provide payroll, collectively they'll lose millions
 
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BudgetB said:
Quite. Presumably it doesn't matter about the small businesses that they will put out of business with this badly thought out plan.
Click to expand...

If you mean people who currently offer payroll services, then no it wouldn't matter. Times change and sometimes a company's core business declines or disappears, even overnight. At one time there was a thriving business sector importing ice from the arctic. Invent the refrigerator and that's gone. New opportunities come along, people adapt to them and when the landscape changes they move on or go out of business.

The objections must come from HMRC ability to actually deal with this
 
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Blackberry said:
There a number of concerns that i would have:

  • Payslips - presumably HMRC would be sending out the employees payslips for them??
given that most of their post takes 2- 4 weeks to arrive (always the postman at fault!) It will be several weeks after payday before employees realise that mistakes have been made, coupled with the fact it takes 6- 10 weeks for incoming post to be opened notification of such errors will be slow to be corrected
​
  • employee changes - as noted above incoming post isnt dealt with quickly enough for employee / employer changes to be implemented, there is little chance of these details be changed over the phone
  • Payslips again - the cost of sending out payslips weekly / monhtly and P60's etc for millions of employees will be huge - will they actually be gaining anything
  • deductions and salary sacrifices etc - fully agree with everything everyone else has said here
  • with the economic crisis and government spending cuts is the system going to built correctly? wouldnt the money be spent better elsewhere?
  • assume this would be a free service for employers or would they have to pay for it? what about the thousands of accountants / bookkeepers who provide payroll, collectively they'll lose millions
Click to expand...

I doubt the practicalities have been thought through by anyone in any detail :rolleyes::rolleyes::rolleyes:
 
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Blackberry said:
  • assume this would be a free service for employers or would they have to pay for it? what about the thousands of accountants / bookkeepers who provide payroll, collectively they'll lose millions
Click to expand...

They'll all have to go and work for the Inland Revenue. In those offices that they shut down last year - or maybe Coventry where they just shut 200 NDPBs or something.:eek:

Or maybe, the inland revenue will just get the employers to pay for it, and the staff, and do all the work, and act as unpaid tax collectors too, or, no that's where we are already.

I'm not losing the plot - I think there simply never was one!!
 
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It's funny because I spoke to someone yesterday working on a joint Companies House & HMRC project (to improve customer experience - really scary stuff and very worrying!! but that is a different story) and he said that HMRC are understaffed!

Wrong staff doing the wrong things wrong IMO :rolleyes::eek::cool:
 
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