Small businesses rue payroll tax overhaul

The Federation of Small Businesses is making a last-minute plea to soften the overhaul of payroll taxes due in April.

The introduction of Real Time Information means employers will have to send HM Revenue & Customs details of how much each employee has been paid and how much tax has been deducted under the pay-as-you-earn system every time they pay an employee. Details have previously been sent to the taxman just once a year.

It is the biggest payroll shake-up since PAYE was introduced in 1944 when Winston Churchill was prime minister, but business leaders fear many small companies are either unaware or unprepared for the upheaval.

Mike Cherry, the FSB’s policy chairman, said the changes were “incredibly burdensome” and could not be coming in at a worse moment.

“There is additional cost, which is to be regretted, but the administration time takes people away from their business at a time when they should be keeping it going or growing it,” he said.

The FSB is proposing an alternative system of Regular Time Information under which employers could submit returns once a month, up to two weeks after the tax period.

That would benefit companies that paid their staff weekly or had a mix of payment times such as weekly, four-weekly or monthly. It would also be aligned with the system for paying the tax and insurance collected to HMRC.

It will be difficult to persuade the government to change course with just six weeks to go to the April 6 start date. HMRC said it was “on track” for employers to start reporting in real time by then.

“Reporting in real time will make PAYE quicker, easier and more accurate – we estimate it will save employers £300m net per year,” HMRC said. “These savings result from PAYE reporting being integrated with normal payroll routines, simplifying reporting of starters and leavers and removing the end of year return.”

Mr Cherry disputed the £300m figure and said HMRC had not provided enough information to businesses. HMRC said it was writing to employers again this month and making information available on its website, on social media and in regional workshops.

The change is linked to introduction of the new universal credit system in October. Businesses that are not “RTI compliant” by next year will face penalties.

A recent poll by the Forum of Private Business, another lobby group, found that two-thirds of small businesses understood the implications of RTI, but nearly half did not see any benefits.

“There are a significant number still ignorant and unaware,” said Phil Orford, the FSB’s chief executive. “The other important issue raised by our research is the huge lack of confidence small firms have in HMRC to cope with the changes.”

Mr Cherry said the change was particularly problematic for employers with poor broadband connections. These are mainly in rural areas but there are also some blind spots in towns.

He said there was anxiety about the combined effect of RTI and universal credit. “The concern is that it’s not going to work and that the administrative burden could be disproportionate and damaging to small businesses.”