Is Making Tax Digital putting pressure on payroll and digital financial reporting?
Alexander Meynell, Commercial Director at CreDec, looks at how the Government’s plans for Making Tax Digital (MTD) and Universal Credit are underpinned by payroll.
Government policy on MTD and Universal Credit is underpinned by payroll, and these reforms rely on accountants and bookkeepers being able to provide evidence of their correct and timely operation of payroll.
By 2020, HMRC wants most businesses and individuals to be reporting their tax affairs online, in near real-time. HMRC is looking for a joined-up system where all information about an individual’s or business’s taxes can be viewed and managed online.
The Government’s reform of the benefits system (Universal Credit) and their requirement to reduce the tax gap mean that the pressure is on to make this move to digital reporting work. The current system, which relies on retrospective checking and adjustment of tax accounts, creates delay and means that HMRC is often required to give refunds to taxpayers or to chase up underpayments, creating extra work for HMRC and taxpayers alike.
The challenge for payroll
This drive to digital relies on the information being presented to HMRC’s systems being correct, particularly where payroll is concerned.
Since the introduction of real time information (RTI) in 2013, data about taxpayers (including their addresses and year to date earnings) has been passed digitally to HMRC, at or before the point payment is made to employees.
This should have dramatically increased the quality of data HMRC holds on taxpayers, but recent information published by HMRC has confirmed that the overall volume of annual P800 adjustments of over 5m is the same now as it was before the new RTI system was introduced.
The challenge for payroll administrators and employers is to ensure that they can evidence that the real time information they are reporting is correct, to protect themselves and the employees, whose tax liabilities they are reporting.
Creating a complete audit trail
The way in which RTI aligns the statutory return to HMRC, and the actual net payments of salary to employees, offers a complete audit trail to demonstrate the correct operation of PAYE. Using payroll software links the two for each employee automatically.
This is why it is HMRC ‘best practice’ to use the real time information BACS payment option when paying employees. Linking actual payments to the operation of payroll reporting ensures the values reported are correctly aligned to earnings.
The use of online Personal Taxpayer Accounts by default by HMRC for all individual taxpayers means that employees will have access to the information acquired by HMRC via RTI about their personal earnings in PAYE.
Getting PAYE right – or risk employee challenge
In practice employees will have not only their payslip but also access to HMRC’s own data for the same period – this means that any discrepancies between the two risks a much higher volume of query and challenge from employees wanting to know why the values in HMRC’s data don’t tally with what’s on their payslips.
Getting PAYE right and being able to prove it has never been more important.
A BACS payment service allows practice payroll to prove not only RTI compliance, but the correct operation of PAYE to both HMRC and clients alike, providing evidence to contest unwarranted HMRC compliance action.
Working with ICAS, and as the appointed partner of all the UK’s leading professional accountancy associations, CreDec’s RTI BACS services have the lowest BACS access cost for practice payroll.
Find out more about how CreDec can help you
About the company
Alexander Meynell is Commercial Director at CreDec.
CreDec provides credit management services to the UK small and medium enterprise market. Our services are based on our payment processing capabilities. We give access to leading credit management processes, payment systems and networks without any of the associated capital expense or costs of ownership.
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.