RESPONSE TO HMRC CONSULTATION DOCUMENT: IMPROVING THE OPERATION OF PAYE
2
1 INTRODUCTION
1.1 The AAT is pleased to comment on the issues raised in the HMRC’s consultation document
“Improving the operation of Pay As You Earn (PAYE): Collecting Real Time Information”.
1.2
1.3
1.4
We have over 49,000 full and fellow members and 68,500 student and affiliate members worldwide. Of the full and fellow members, there are approximately 3,300 Members in
Practice who provide accountancy, payroll and taxation services to individuals, not-for-profit organisations and the full range of business types.
Our members, particularly members in practice, provide payroll and taxation services as a commercial service to business and, where relevant, to their own employers hence they will be directly and significantly affected by the proposals.
The proposals seek to follow on from the consultation on 23 July 2010, which included proposals regarding the concept of centralised calculation and deduction of PAYE.
GENERAL COMMENTS
2.1
2.2
2.3
2.4
In the original consultation document dated 23 July 2010 the AAT and its members were generally supportive of the concept of real time information exchange as a method of improving the operation of PAYE. We could see that HMRC, employers, agents and in particular, taxpayers could benefit from a properly set up regime of information exchange.
With this consultation and the development of the concept into something more significant we would continue our general support. There are still many concerns which our members have, particularly with BACS the transmission medium, however, if some of the promises regarding general administration savings are realised then we can see that members will enjoy a better service as will their employers and clients.
The AAT supports HMRC ’s decision not to proceed with centralised deduction at this stage.
Our members had significant issues with the proposals and whilst we recognise that the proposal will be brought back for further consideration at a later date we support the idea of giving both NPS and RTI time to settle in and develop naturally before centralised deduction is debated again.
The main concern of members with RTI is that it is being allied with the implementation of universal credit from 2013. Whilst there is general agreement that the benefit system is in greater need of development and modernisation than PAYE our members have concerns that this new driving force may result in a system which, firstly, is not properly focussed on the requirements of employers and taxpayers and secondly may be driven faster than the technology is capable of handling within these timescales.
Page 1 of 14

3
2.5
2.6
Another concern of members is the decision to use the BACS system for transmitting the very significantly increased amount of data to HMRC. Large employers invested significant sums in the development of Electronic Data Interchange (EDI), in order to file online with
HMRC. The proposals mean that this very recent investment in EDI would have to be reclassified as cost now that those same employers will have to switch to using BACS instead.
We expressed concern in the original consultation with the use of systems for a purpose they are not intended for, and the fact that this will be one way instead of the existing, and highly efficient, two way process with EDI. This means that those employers using EDI will have to develop new ways of implementing instructions from HMRC. We note that as a result of RTI the numbers of such instructions from HMRC is likely to increase.
2.7
THE CONSULTATION DOCUMENT
3.1
Members have also expressed concern about the comment made in the Executive Summary that following analysis of the comments received, a final specification will be issued to software developers by the end of March 2011. Whilst this turnaround is commendable members have reservations about the ability of HMRC to properly analyse the many hundreds of responses in time to formulate a final specification. We feel this is much too short a period in which to do a proper analysis and compilation of the specification. We can see that one or the other can be achieved but the time scale shown suggests to many that the specification has already been written.
3.2
The outline timetable for implementation given in paragraph 1.10 in the consultation document has generated comments from our members. There is considerable evidence of poor performance in respect of public sector implementation of major IT developments and this particular proposal has such significant implications as it imposes significant burdens on employers, therefore the timetable indicated is a serious cause for concern. Many members have indicated that their employers or clients will struggle to comply with this timetable during a time when their efforts continue to be devoted to survival.
We welcome the comment in paragraph 3.6 that employers will have to change their payroll processes. Previous developments have not been so specific and to have such a clear and unambiguous comment so early in the document will ensure that employers and representative groups will focus their minds on the implications and not consider at any time that they will be immune from change.
3.3 We do have a concern that there is a reference in paragraph 3.7 to sending information pay period by pay period “instead” of annually which clearly suggests that the annual P14/ P35 return will cease. Then in 3.9 the comment is changed to HMRC “envisage that they will no longer have to submit P14/P35 end of year returns”. It is clear that with the burdens employers currently have and those extra responsibilities they are having to absorb over the next few years any more additional work in this respect must be offset by savings elsewhere.
Therefore, as a minimum there has to be a guarantee that the annual return will no longer be needed, if such employers have any chance of being able to work diligently with this development. The difference in emphasis between the two paragraphs gives us a concern that either the annual return will be retained, as an additional and unnecessary exercise, as was proposed in the payroll of benefits in kind proposals, or will take some time to remove from the list of regulatory burdens.
Page 2 of 14

3.4
3.5
3.6
As we will comment on later we have reservations that the leaver and joiner administration will be relieved in practice when the RTI system has bedded in.
In paragraph 3.10 the paper refers to the regulatory requirement that employers will have to use the BACS system to transmit the new data to HMRC and states that small employers will be able to use other methods, but only initially. We have already mentioned that large employers may be aggrieved now that the considerable investment incurred in the implementation of EDI will no longer be of any use under the proposals. Large employers would not have spent such significant amounts in implementing EDI without encouragement from HMRC. Large employers may need assurances from the government that this latest decision will survive for a reasonable period.
Members are also concerned by the comment that small employers will only initially be permitted to use other channels to submit their RTI data. This suggests small employers will have to migrate to BACS at some point. There is a suggestion this will be in 2018 to coincide with the withdrawal of cheques form the UK payment system. We see this as an inadequate appreciation of small business practices, particularly of the many hundreds of thousands of cash based businesses who simply cannot afford to use BACS. We envisage such employers having to open and pay for BACS accounts simply to transmit data because they will not be using such facilities for transmitting payments. We have already, here and in our response to the original consultation exercise in 2010, expressed concerns about using a system like BACS for purposes other than for its primary purposes.
3.7
3.8
We support the comments made in paragraph 3.13 that taxpayers will benefit from the ability of HMRC to respond almost immediately to inconsistencies in employees’ records as opposed to the current process. For example many employers get caught out by new employees completing the P46 form by indicating the use of the wrong tax code by completing the wrong box. It can take many pay periods before the employer is informed that code, say BR is to be used instead of the selected on, say 647L. It will help all parties if
HMRC could respond quicker to this type of error.
We have significant doubts, however, that quicker responses will be forthcoming in the time indicated by the consultation document, which suggests it will be almost immediate. Even employers who file P46’s online experience considerable delay before new employees coding errors are corrected and we cannot see how this new system will be any different.
Employers and representatives need assurances that under the new system HMRC will change its processes significantly in order to make sure it responds to employer and agent information in a far more diligent fashion than it does now.
3.9 We welcome the comments made in paragraphs 3.18 and 3.19 that the P45 and P46 processes will be discontinued, which is a very definite comment that has the potential to reduce employer administration and burden. However the clarification that the P45 / P46 may in fact be simplified rather than discontinued does diminish the benefits of this proposal.
As we will explain later when the proposals are examined in detail, we have significant doubts that employers will experience a reduction in administration.
3.10 Finally we welcome the comment that employers PAYE payments can be collected accurately under RTI and agree that under these proposals the days when employers can use their PAYE liabilities for anything other than making a payment to the HMRC accounts office will be numbered.
Page 3 of 14

4 REAL TIME INFORMATION: DETAIL
4.1
4.2
4.3
4.4
One of the key concerns the AAT has is contained in the comment, in paragraph 5.2, that employers will be required to submit details of payments and the facts behind them to
HMRC at the time that the payment is made.
Firstly, we believe that cash based employers will have difficulties and will not be using
BACS, now, on implementation of RTI nor in 2018 when it is envisaged that BACS will be the only medium for payment. We do not agree with the premise in the consultation that such employers will move to paying their employees by BACS, sooner rather than later.
AAT members who have been canvassed for their opinion continue to be of the view that such businesses have a vested and financial interest in making wage payments in cash and are unlikely to use BACS at any time. For them to be persuaded to make the change the banks would have to guarantee that the combined charges for BACS transmissions and the banking of cash takings would be capped at the current fees they pay and we do not feel that such a guarantee could, or should, ever be made.
Cash based business pay a fee for all takings paid in to their business accounts and for all cash drawings from that account. All payments by BACS incur a separate charge both from the bank and from BACS itself. Cash based businesses use their takings to make wage and other payments specifically to reduce the charges they would otherwise have paid if they paid all of the takings into the bank and then withdrew the wages from the account.
4.5
4.6
4.7
4.8
4.9
By reducing the payments made into the account such businesses reduce their charges by a very considerable amount. Even those very small businesses who make payments electronically are more likely to use their internet banking to transfer net pay rather than pay
BACS to do so. Very high cash based businesses are unlikely even to do that. There is nothing in the system which provides any sort of incentive for these businesses to change and we do not envisage that situation to alter in the future.
If those businesses are forced to use BACS to make the data transfer to HMRC then consideration needs to given as to how that is going to work when no payment information is being transmitted at the same time.
Currently employers are not required to submit any information to HMRC accounts office when making the payment, they are not even required to separate the payments between net income tax and net national insurance contributions. In 5.3 the document makes it clear that employers will not only have to make payment but they will again have to provide the data which used to go on the payment slip. This, as we mentioned, re-imposes an old burden on employers which had only recently been relaxed, to the benefit of employers and does not support claims of simplification. We would recommend that this should not be done at a time when RTI will bring a significant extra burden.
We also note in 5.3 the first confirmation that all administrative responsibilities for construction industry will remain mixed up with the RTI. AAT’s members have asked us to point out that unless PAYE and CIS become separate functions they will continue to struggle to comply with HMRC’s considerable burdens upon them.
The entire function of construction industry is very rarely carried out by the same people who administer PAYE, whereas HMRC treats them together as if they are associated. The skills, knowledge and experience required to administer and manage construction projects, which
Page 4 of 14

includes managing the construction industry scheme, are different from the administration and management of employee payments via payroll and the PAYE system.
4.10 Continuing to keep these two together and making one person responsible for both within the employer will only mean the problems associated with administering them both will persist. We would point out that some employers will use a different provider to do their payroll than the one they use for administering CIS. An agent, who is only responsible for payroll cannot comply with the employer ’s responsibilities for CIS unless the client is paying for cross provider liaison. The employer also needs to make a decision about who is going to manage the final returns, the agent responsible for payroll, the agent responsible for CIS or to keep this function in house.
4.11 In 5.5 there is a comment that using the same channel for payment and transmission of data will reduce burdens for employers. We have already mentioned that small cash based employers are going to have to make separate submissions for data and payment unless it becomes a mandatory requirement to make payment by BACS and incur significant additional costs.
4.12 There is also an issue about those employers who currently use EDI to transmit employee related data to HMRC and receive immediately loadable return data back from HMRC. They may have a new linked channel to transmit payments and data but they will lose the return channel they currently have and will therefore have to invest further in whatever software is needed to replace that. Unless there is something yet to be included in the proposals which will fix this, we see considerable burdens on employers when attempting to deal with this.
4.13 The data required by RTI is considered by HMRC to be the same data that employers are required to keep anyway, paragraph 5.6. However, small employers in particular will keep only the very minimum data needed and are unlikely to try and obtain data they do not need.
Even where the employer does obtain data, passport information, statutory payment data and many others listed in Annex B, this data is not kept on any computer file and currently there is no law which state that it must be. Consequently, whilst many of the items will be available, they will not be held in a manner which facilitates collection and transmission.
4.14 Even larger employers may not be in a position to collect and transmit this data. Whilst many large employers use integrated HR and payroll databases, many others do not. Much of the data referred to in Annex B is HR related and not payroll and we have concerns that employers may be forced to make considerably more changes to their practices than was originally envisaged.
4.15 Paragraphs 5.8 to 5.10 cover the proposals for PAYE payments to HMRC accounts office.
The AAT is pleased that with RTI there will be a direct correlation between the amounts of income tax and national insurance contributions deducted from employees by their employer and the sums paid across regularly to the HMRC accounts office. For too long some employers have been able to underpay their PAYE payments giving problems generally in respect of tax collection.
4.16 With RTI such employers will not be able to hide any aspect of their PAYE liabilities and we feel the whole system of PAYE will benefit as a result.
4.17 It is our view that employers ought to continue to be responsible for initiating the payment due and making that payment on the due date by the method appropriate to their business.
HMRC will be able to match this payment against the expected sum and take action immediately if there is a shortfall. We are not against the idea of employers agreeing to
HMRC using the direct debit system if they wish as it may suit some employers, however the
Page 5 of 14

idea of a combination of the two, direct debit for the income tax and national insurance primary contribution with a separate payment for the employers charge is not what we would consider to be efficient and effective revenue collection.
4.18 In answer to the question in paragraph 5.10 we would advocate the mandatory imposition of electronic payment. In addition the AAT feels that small employers who currently enjoy the benefit of quarterly payment ought to continue to be allowed to do so. The ability to deal with taxes in this way assists small business and we feel there is ample reason to continue to do so.
4.19 On the subject of joiners and leavers, paragraphs 5.11 to 5.17 we welcome the idea that employers will notify HMRC of new and departing employees using the RTI information transfer. This makes sense if the system is to work efficiently and effectively, however we are very sceptical that this will result in any administrative savings for employers.
4.20 According to paragraphs 5.12 and 5.13 employers will still be responsible for determining the initial tax code to use when a new employee joins the organisation. They will also be responsible for issuing a leaving statement to anyone leaving the organisation. The AAT sees such activities as no different to the P46 and P45 processes employers are currently responsible for, in fact we would argue that employers currently make the first decisions about tax codes and issue leaving statements, this process is called P46 and P45 so the proposals in the document, to us, are merely replacements for this existing process and we see no reason to make a change.
4.21 Employees and employers are familiar with the P46 and P45 so there is no reason to change them when most employers may create their own form, and probably call it a substitute P45.
4.22 We accept that employers will no longer have to file the P46 and P45 data with HMRC and instead submit the data on the RTI file exchange, however many employers currently exchange this data with HMRC now using their EDI and FBI facilities. Whilst this proposal is useful we do not see it as an important factor for most employers as it simply substitutes one filing method for another.
4.22 In relation to the annual P14 and P35 return, we believe that some form of annual reconciliation will be needed or requested. We can see the need to remove the P14 from the process, however employees will still have to be issued with an annual summary of pay, income tax, statutory payments and national insurance contributions, therefore there will no change here and there will be no savings to employers. Similarly we envisage that some form of reconciliation will be required by HMRC accounts office in order to establish that the total amount of PAYE received in the tax year accords with the amount of PAYE due. In that event employers will lose the benefit of another saving.
4.23 Employers may welcome a national insurance number verification service within
RTI.However, HMRC is supposed to be providing this service already through the number tracing facility and the payroll data cleanse process. Unless this new facility is significantly better than the existing two then there will be no benefit to employers.
4.24 We agree that employers currently have their own methods of exchanging data with HMRC and that large employers have invested heavily, as they were required to do by HMRC, in the EDI facility. Those employers who do so report that they are, finally, happy with this process as it is a two way exchange, payroll data going up to HMRC via EDI and automatically loadable data coming back down. Any change to this will significantly affect the efficiency of some employers ’ processes.
Page 6 of 14

4.25 We would agree with the view that the majority of wage payments are made by BACS, however we would like to see some evidence that it is as high as 90%. AAT members report that a significant number of their clients do not use BACS and many make payments in cash.
4.26 In many cases employers do not use BACS because the cost of setting it up for a small number of employees and even many small payroll providers will shy away from the cost of setting up a BACS facility for their clients.
4.27 Perhaps the most important reason for avoiding BACS payment facilities for some businesses is the cost of processing cash. Cash based businesses account for a significant proportion of the high street and many independent stores and services will rely very much on cash transactions. These businesses do everything possible to avoid paying all of that cash into their bank accounts because of the level of charges levied upon them for doing so.
4.28 By paying for supplies and, in particular, making wage payments out of the general takings these businesses both reduce, dramatically, the charges levied by their bank but also avoid the cost of making BACS payments to employees. If such businesses were compelled to use BACS for payment purposes the effect of the double charges, firstly for setting up and using BACS and secondly, and much more importantly, the cost of processing the cash they have through their business bank account would be devastating, it could even mean the difference between these businesses surviving or not.
4.29 We would urge HMRC to ensure that an alternative channel is available for small businesses and to ensure that this is not withdrawn at any time in the future, unless an arrangement can be made with the banks to offset the charges bearing in mind that they will be levying charges for the use of the BACS system instead.
4.30 Much is being made of the HMRC guarantee that employers will not have to meet the cost of extracting the information from the BACS submission. The cost of extraction will be initially be incurred by HMRC then the costs will be passed onto taxpayers and then to employers.
The consultation document does not say who will be meeting the cost of putting the data on the BACS file in the first place. Employers make a payment to BACS, and their banks to meet the cost of transmitting a payment to an employee but this only requires the supply of a very small amount of data. Complying with the RTI requirements will involve increasing the amount of information many times and whilst we welcome the HMRC declaration that employers will not face increased costs for extraction at the other end we wish to see some statement or declaration from BACS and HMRC that employers will not be charged for the work involved in supplying the information in the first place.
4.31 In paragraph 6.5 we note that much is made of the fact that using BACS means employer have only a single process to follow to cover all of their requirements. However many employers use BACS to transmit payments and EDI to effect a two way communication with
HMRC and the reduction to a single process is achieved by combining these two processes into a single process, rather than eliminating one of the processes.
4.32 If EDI is no longer an option then such employers will have the BACS channel to make payment and transmit data to HMRC but then has to go back to older methods of receiving responses back from HMRC. This means employers still have two channels and as far as we can tell no appreciable benefit overall. Unless the BACS facility can be enhanced, at no cost to employers, to allow two way transmission there is a risk that some employers will go back to individual notifications which have to be entered into their HR management systems.
Page 7 of 14

4.33 Our members are likely to find the proposal in paragraph 6.6 very hard to accommodate. At present many employers use their agent to make the complex calculations but are perfectly capable of managing the payment side themselves. In many cases this is because they are making payments by cash, or they will set up each payment using their internet banking system. This is a very cost effective method of managing payroll.
4.34 We cannot see any problem in requiring the agent to submit the PAYE information to HMRC using the alternative channel whilst leaving the employer to manage their payments to their employees. Agents will have no choice but to charge their clients for this work as it is clear that additional work will be needed. However, requiring the employer to either terminate the arrangement they have with an agent in order that they can carry out the whole process or contract out the entire process to the agent, at increased cost, is not efficient and effective.
4.35 Employers use payroll bureaux for very good reasons, the main one being that they want to run their businesses and be successful and that means using the right expertise to carry out complex functions like payroll. Agents will be put in an difficult position where they will incur costs in carrying out these functions for clients and have to pass these costs onto their clients.
4.36 The end of year process will have to change for employers and we support any attempt to remove processes from PAYE and anything which can relieve the burden on businesses is welcomed. Considering that the annual P60 will still have to be produced and provided for employees in the normal way we believe that the savings for employers will be low. Many employers use the final payslip of the tax year as a substitute P60 form but even here such employers will not issue the payslip until they have carried out a final reconciliation of the years ’ payroll.
4.37 There is a need for a final reconciliation of the total income tax and national insurance contributions against the payments made during the year. Not doing so can result in discrepancies which may go on for some time before discovery, unless HMRC intends to ask that employers carry out pay period by pay period reconciliations. This is something the
AAT and its members would be extremely reluctant to do.
4.38 We note in paragraph 7.4 that there has been suggestions of payments after leaving being taxed in the same manner as they were during employment. AAT members welcome the
April 2011 change to using tax code 0T for all payments after leaving but would not advocate the retention of the old code from when that person was employed. Fundamentally there is no problem for employers if they were required to do this because the resulting underpayment in income tax would be transferred on to the taxpayer later on, or fall to the new employer to recover in some way, however, we do not see this as being an efficient method of dealing with payments after leaving.
4.39 If employers are to continue to supply a leaving statement, as indicated in the document and particularly in paragraph 7.5, then AAT members would rather this was the final payslip as opposed to any form of separate employer ’s statement. Many small employers will struggle to endorse such statements with suitable comments but it would not be difficult to make sure such employers inform their departing employees that the final payslip ought to be retained.
4.40 For simplicity we feel that the P46 form ought to be retained. According to the document and as detailed in paragraphs 7.6 and 7.7, employers will have to ask exactly the same questions as are currently recorded on the P46 form. The answers to these questions are the only method available for employers to determine the commencing tax code for a new employee. The most important issue on this form is the decision made by the employer, or agent when the form is not completed, or completed but not signed. For employers to
Page 8 of 14

replicate this process in its own format, and remember that many small employers have no formal new employee process, would mean a recreation of the P46 in a variety of formats and we do not see this as being an efficient and effective method,
4.41 The P46 form has all the relevant questions and a declaration and we we would recommend keeping it as part of the process in the long term, as even HMRC agrees that the P46 is the main form for a new employee and not the P45.
4.42 We are aware that HMRC has been asking for details of error corrections in advance of the formal RTI consultation responses and we are aware that many such details have been supplied. We expect the comments in paragraphs 7.8 and 7.9 to be changed dramatically as a result.
4.43 We do not consider that AAT members should be required to submit additional mid period returns when extra payments are made. The recommended and best practice method of dealing with underpayments of wage and salary is for the employer to advance a sum of money equal to the net payment due, rounded off to a whole pounds value and then to correct the situation officially in the next pay period. The advance is by way of an interest free, short term loan to tide the employee over for the necessary period, this loan being repaid by way of voluntary deduction when the correcting entries are made.
4.44 Employers do this because the loan is funded from a separate account to the normal wages account and the necessary accounting entries are dealt with through a normal payroll run and removes any additional burden from the payroll team.
4.45 We accept that if an employer is using software which is sophisticated enough to process additional payments post pay run then a return would be needed. Such employers have to account for the income tax and national insurance contributions they have deducted from the additional payment in the normal manner and would therefore need to submit the additional return in order to confirm this process to HMRC.
4.46 The vast majority of employers cannot do this and additional returns would mean carrying out additional processing, additional accounting transfers and submitting the additional returns and this would be a considerable burden to them.
4.47 In paragraph 7.9 there is a proposal that HMRC is informed as soon as an overpayment is identified and that if the employee has left that any post payroll adjustment is delayed until the full amount of the overpayment has been recovered. We agree with this principle and consider this to be best practice.
4.48 The recovery of overpayments is a complex subject with a variety of methods used by different employers. Overall, employers must comply with both the Employment Rights Act
1996 and the industrial tribunal British Rail decision. This decision established the rule that employers must recover the exact net amount of salary or wage the employee was paid in the first place, no more and no less, though employers are free to recover less if this is necessary.
4.49 The whole process is an industrial relations exercise with the income tax and national insurance issues coming further down the list of important issues to deal with. Whichever system is used must lend due respect to the needs of employers and must not interfere with an employers responsibilities in employment law even if it distorts the true payments due and interferes with HMRC and DWP requirements.
Page 9 of 14

5
4.50 The timetable for implementation is the area which our members have the most difficulty.
Whilst it is encouraging that the government is so committed to a development of this nature and it is prepared to set such an ambitious target for implementation we regret that previous performance in respect of IT development leads us to be very doubtful that the timetable can be met.
4.51 We would, of course, encourage our members to work with HMRC and DWP to ensure the implementation progresses and is successful. Whilst small and micro employers will probably do what they need to do and only when they are made to we also assume that larger employers will have considerable reservations about diverting their attention from their own, critically necessary development to work on a programme like this, particularly where they may have reservations about the payback.
REPONSES TO “VIEWS SOUGHT”
5.1 Chapter 5: Could this new process allow the phasing out of the need for an end of year reporting process? (5.5) – The AAT has every hope that this will occur even though it will be of little consolation when it is being replaced by 12, 52 or more returns instead. We recall the recent consultation regarding the payrolling of benefits in kind where late on in the exercise
HMRC admitted that in addition to the end of year process for the more difficult cases they would also like to see an annual reconciliation of the payrolled ones. This experience leads us to assume that businesses will still be asked to submit reconciliations in addition to the pay period by pay period returns.
5.2
5.3
5.4
Is monthly submission of information about employer-level adjustments (as suggested) the most efficient approach for employers? (5.5) – The return should be everything necessary to replace the current system. If employers are to recover any of the costs of mandating this change the final return must contain everything needed to drive the payments due to HMRC accounts office and whatever is needed to manage the universal credit system. Any data missing from this will require a separate channel and submission and, consequently, increase costs for employers.
Alternatively, would it be possible to send details of these adjustments at the same time as the real time information about employee deductions? (5.5) – As indicated above, the AAT is not in favour of separate submissions, even if they occur at the same time as the main exchange of data. If this is to work we feel it ought to be in one simple transfer.
Is the data contained in Annex B already held in payroll systems? (5.6) – Some businesses may hold all the information in Annex B but it is unlikely that all the information will be held in its payroll system. Most small and micro employers will not hold a lot of the information listed, and we would point out that the list contains 102 separate items. Even larger employers will not hold this data in payroll but will do in their wider HR management system.
As examples we would cite item 9, passport number as being one where there is no requirement for payroll to deal with such information and we would contend that it would offend the data protection act for them to do so. Eligibility to live and work in the UK is a recruitment responsibility and therefore of no interest to payroll staff or agents. One agent went as far as to say that his practice would refuse to hold this data on this basis. We cannot understand where an employer would know anything about the benefit position in items 13 to 16 and again we would have reservations about payroll staff processing such data.
Similarly the requirement for payroll to know about issues such as those in items 20 to 22 is questionable to say the least as most employers would use specialist advisers on such matters. As a summary we would say that most employers will hold the absolute minimum data they need to process payroll and for many of our members this would exclude a considerable amount of the data listed in Annex B.
Page 10 of 14

5.5
5.6
5.7
5.8
If certain items are not currently held, would they be easily obtainable? (5.6) – The government would have to make it mandatory for employers to hold the data, make it mandatory for employees to provide the information and for employers and agents to hold that data within a payroll system of some kind, including where employers use spreadsheets to calculated payroll or do so manually. This would mean employees could be penalised for failing to answer the statutory questions and agents will have the ability to charge appropriately for the additional work involved.
Do you envisage any difficulty in incorporating new data into your payroll system? (5.6) –
This will depend on the current set up. We envisage that many employers and agents will use proprietary software and we would expect that software to be developed accordingly, this is after all a new statutory function. We suspect, however, that software suppliers will have no choice but to impose additional charges for such a development and some employers may take the opportunity to withdraw from the use of such software. One agent reported to us that having used a well known accounting and payroll system for their practice and clients for some years he has now discontinued his use and has set up a series of spreadsheets to carry out the accounting and payroll work. He is concerned now that after making this change, to the benefit of both the practice and clients he may have to invest once again in software which is unnecessarily complex and costly for his needs.
Do you have any other comments on the data items specified in Annex B? (5.6) – Yes, we see some of this as an attempt to gather information, which has been desired for some time but not demanded, using the RTI legislation to put it into effect. We agree that much of this is the information contained in the annual return now.
Which of the three methods of collecting the payments would you prefer? (5.10) – All three methods are valid and our members must make their own choice at the appropriate time.
We believe that the new system should progress with all three intact and allow employers the choice. If this is not what HMRC is looking for then we would envisage most employers would prefer to retain control over the payment and to make one single payment as they do now. We are not in favour of HMRC using the direct debit system to collect the sums due.
5.9 Is there a better way of collecting these payments and should the current choice of cheque or electronic payment be retained? (5.10) – We feel the current choice should be retained until the use of cheques is discontinued. We cannot see any real benefit to forcing employers to use electronic payments until they are ready and in any case the current rule that cheques must be cleared by the deadline for them to be validly received means there is no financial advantage to using cheques.
5.10 Should HMRC continue to allow payments on a quarterly or annual basis? (5.10) – Yes, definitely . This has been the cornerstone of HMRC’s relationship with small businesses for many years and this should be retained.
5.11 Is changing the movements process in this way preferable to retaining the current process?
(5.17) – Only in respect of departing employees as we see considerable merit in retaining the P46 form as a specific declaration by a new employee. There will be no requirement to issue a P45 and there are very considerable documented occurrences of employees holding on to their P45’s when they change jobs. One thing which would have improved the existing system would have been to make it mandatory for departing employees to hand over the
P45 to their new employer but since that is optional for taxpayers many of our members report that it does not happen. If it can possibly be achieve our members would welcome the complete removal of any and all end of year payroll processes.
Page 11 of 14

5.12 Is there a better way to structure the movements process? (5.17) – As mentioned above we feel that in order to ensure new employees provide the information necessary for the new employer to make the initial decision on tax codes some formal process is better than a less formal employer led process. Employers view the P46 as a powerful incentive to provide the information needed and many new employees respond to it, even to the point of having the form returned to them until they complete it fully and where payroll impose BR, or 0T from
April 2011 the employee can be shown the reasons for this on the form. Since it is a HMRC form it makes it easier to convince employees they are responsible for their own tax code.
5.13 Do you have views on the appropriate ta x code to operate in the case where an individual’s identity details failed a verification test? (5.18) – Primarily we do not consider it is the employers problem if the national insurance number provided by the new employee is a valid one or not, except that we know an end of year return will fail if the number is not present and the employer cannot supply as an alternative the gender and date of birth. We do welcome the idea that employers will have another route to finding employees national insurance numbers because the existing system is unreliable. What the proposal seems to be suggesting is that if an employee cannot be matched at all with an existing HMRC record there ought to be an alternative tax code to operate. We would agree with this and would advocate the use of 0T, just like with new employees who fail to complete a P46 form completely.
5.14 Are there any specific reasons or barriers why you do not use BACS to pay your employees and could you details these? (6.9) – As we have stated we understand from our members that cost is the main reason why some employers and many agents do not use BACS.
Recently one payroll provider told us that of all the costs incurred on setting up her payroll business, licensing, money laundering supervision and insurances, by far the greatest cost was the BACS set up costs which exceed the others combined. For cash based businesses the cost is two-fold, firstly being able to use BACS to make the payments and secondly the cost of banking the cash they receive. These businesses use the cash takings to make payments, particularly wages, in order to reduce the charges they face when paying in to their businesses accounts. We see nothing in the proposals which will provide such business owners with any kind of incentive to change.
5.15 It would be helpful if you would provide volumes (e.g. number of employees and frequency of payment) around the circumstances outlined above. (6.9) – We understand from research carried out by ONS that some 6 million employees are paid in cash and whilst this number is dropping we feel this accurately represents the numbers of employees who are working in small businesses and in the cash based retail and services sectors.
5.16 Do you envisage any difficulties with providing information on a payment by payment basis through the proposed internet channel? (6.9) – Yes, unless employers and agents can work out some way of transferring data automatically to the internet channel. We envisage that such employers will complete their payroll processes and make the necessary payments but then manually re-key the data into the internet facility. This is inefficient, however it is probably inevitable that some employers will be forced to do this. It is likely that very small employers will use an agent to compute the required net pay and then handle the payment, as they do now, and the submission to HMRC, in order to reduce costs.
5.17 Do you envisage any difficulties meeting the requirement to provide information on, or before, payment is made to the employee? (6.9) – Yes, simply because the requirement to submit statutory data to HMRC must never be allowed to interfere with the primary purpose of the payroll function, nor with the secondary requirement. Payroll’s first task is to ensure each and every employee is paid the required sum of net pay on the correct date of payment. The second task is to ensure the total costs of this achievement is transferred into
Page 12 of 14

the employers accounts swiftly and accurately. This new process is important but HMRC must recognise that the requirement to file the information under RTI will come at least third on the payroll team ’s priority list.
5.18 Do you agree with the relaxation provision set out in paragraph 6.6? (6.9) – Yes, the AAT very much agrees with this proposal and in fact we would wish to see it as a permanent part of the development and not temporary in any way. Whilst there may be costs and some inefficiency in small employers having to re-key data to a submission channel separate from the payment method it has the advantage of being very simple and straightforward.
5.19 Do you think the current exemptions from on line filing would still be needed under an RTI system? (6.9) – This is not a decision we feel qualified to comment upon except to say that
HMRC extended these exemptions for a reason and unless RTI changes these reasons we see nothing in the document which would justify such a large step for such employers. We would advocate a review of such employers, perhaps in conjunction with the appropriate consultative group in order to establish why they were given exemption, whether that still stands today for on line filing and then determine if RTI changes any of the factors.
5.20 Would employers that are currently exempt from on line filing be prepared to send paper returns on a payment by payment basis? (6.9) - The short answer is we do not know, however if this was mandatory and incumbent upon them in order to maintain their exemption from on line filing then we can see very little argument against it. Given that one of the key success factors will be the successful implementation of universal credit and that the sort of claimant most likely to require UC will be working for such an employer we do not see how it can be avoided.
5.21 Would the change outlined at 7.4 solve the overlapping pay period problem? (7.5) – The
AAT does not think so. The use of BR or 0T for payments after leaving is specifically used to reduce the potential underpayment of income tax which can occur if an isolated payment is made. In most cases when an employee leaves it is to go to a new employer and the personal allowances need to be transferred as quickly as possible to allow continuity of tax deduction. Use of the in employment tax code will under deduct in such cases and only BR or 0T will prevent this. Obviously if the employee is not in employment when the additional payment is made then BR and 0T will over deduct but it is not for the employer to establish this.
5.22 Would employers be content to submit RTI about one off corrections to pay in between regular pay runs or would it be easier to process these at the next regular pay run for the individual? (7.8) – The AAT feels this would depend on the process used by the employer and the sophistication of the system used. Some payroll systems will carry out a supplementary pay run which calculates and adjusts the income tax and national insurance contributions as if the payment had been made at the correct time and in such cases the
PAYE payments must include such additional deductions or refunds. Hence we feel that such processes must inevitably be followed by an additional RTI submission otherwise the payment of PAYE made, if it is the correct one, will not match the totals contained in the RTI submissions. Where the employer uses the simpler short term loan method of dealing with underpayments of wages and where no statutory deduction calculations are made we see no reason to insist on a supplementary RTI filing.
5.23 HMRC would be interested in hearing views on how changes of works numbers could best be notified under RTI (and how the reasons for change could be best captured). (7.12) – The simplest method would be for the employer to submit the old and new numbers in the appropriate RTI submission.
Page 13 of 14

6
5.24 HMRC would be interested in views about whether this timetable is achievable and the issues you might foresee in meeting it. (8.3) – We have made it clear in our comments above that we are doubtful about the timetable, though we welcome it as it will mean moving from one regime to a new one more quickly than we have seen before. It is our view that small and micro employers will move only when they need to as they have more pressing matters to consider in the running of their businesses. We consider that the ability to meet the timescales proposed is probably more to do with the software suppliers and their ability to programme the necessary changes.
SUMMARY
6.1
6.2
The AAT is delighted that this matter is progressing as it not only provides us with the opportunity to consider the main issues under discussion but also to engage in debate over some of the other related areas.
Overall, as we indicated in our response to the consultation last year, we support the idea of employers supplying data on a pay period by pay period basis as long as it happens in a manner which respects the needs of employers and removes some of the more unnecessary administration currently faced by employers.
6.3
6.4
6.5
We believe that small employers are misunderstood in the whole process and we do not think that small employers will be able to work with HMRC as readily as the larger employers and we feel many of them will struggle with RTI.
The fact that a definitive decision has been made is welcomed as indecision is unhelpful to any employer, large or small.
The timetable is ambitious and we foresee many problems arising because of it and we hope that ministers, HMRC and DWP agree to delays in the timetable if that means a better quality result.
Page 14 of 14