An interesting research report has been produced for HMRC looking at the problems faced by micro employers managing PAYE in Real Time.
The key findings from the report are summarised as:
Regardless of how the micro-employers interviewed as part of this research manage their payroll, PAYE management is not integrated into the ‘payroll process’. Many do not see it as a coherent, end-to-end process at all, but a set of discrete and dissociated tasks. A lack of understanding of how PAYE real time reporting obligations should be managed is a main source of micro-employer error. Reporting PAYE is often treated separately from the core function of running the payroll, and tied to the (often less frequent) rhythm of paying HMRC and the related tax month deadlines. Dates (knowing what should be done and by when) present the biggest single challenge. Examples of good practice exist, typically when ‘running the payroll’ and all associated tasks are strictly managed and RTI reporting duties are integrated into the payroll process. Micro-employers’ and agents’ misunderstanding of RTI reporting is exacerbated by their own behaviours (lack of checks and low prioritisation), which also contribute to error in RTI submissions. Some errors involved in RTI reporting are attributed to factors outside a microemployer’s control and these add to the opportunity for error. When compounded by poor understanding and capacity issues, errors can easily escalate from a single issue that should be easily solved to a cascade of problems that some micro-employers lose control over. Penalties can affect behaviour change but their impact is currently limited by a lack of understanding as to why the penalty was issued and a lack of explanation about the way they are implemented and enforced. There is no shortage of information to educate micro-employers about their duties but the investment required to make best use of the available resources (either in terms of time spent self-educating, or money spent on an advisor or premium software) can cause difficulties for those where time and/or available money is scarce.There are two emerging considerations for HMRC:
The first is the need for HMRC to focus on better rather than more support, specifically, generating more accessible resources – such as a road map to guide micro-employers through the process, highlighting the key requirements to be aware of, with links to the relevant detailed information already available, and a summary of important dates to remember. The second consideration for HMRC is to introduce clarity and consistency on penalties. The penalty system is an existing communication channel and could be used to raise awareness of the causes of penalties by including more detailed information in the penalty notice letter itself, or signposting to a diagnostic tool to help micro-employers to identify the cause of error.Comment
The report is extremely detailed and gives information on the methodology used together with the findings. But interestingly, there is one paragraph which is somewhat understated:
Mindset, aptitude, capability and capacity all influence the approach taken by micro-employers in terms of how they run their payroll and meet their PAYE obligations.
By definition, micro employers employ fewer than 10 employees and I can imagine mindset is very important.
