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Paying HMRC without pain!

29th May 2015
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Poor payment processes get punished in a digital world. That’s true for payments to HMRC too.

Getting the employer PAYE payment reference right on a payment of PAYE to HMRC matters. Perhaps it shouldn’t but it does, and more than you might think.

HMRC’s own guidance on GOV.UK on this central aspect of operating PAYE correctly says the employer must use their 13-character Accounts Office reference number as the payment reference, adding “Your payment may be delayed if you use the wrong reference number”.

What HMRC says exactly is “You don’t need to add any digits [to the 13 character Accounts Office Payment Reference] if you pay on time” but ‘early or late’ payments, which it defines as 14 days or more before (or after) the 22nd of the month, require employers to change their payment reference.

In these instances of early or late payment HMRC says employers must add 4 numbers to the end of the 13 character Accounts Office reference “to tell HMRC which tax month and year” the payment relates to. The first 2 extra digits relate to the tax year and the second 2 digits relate to the tax month, counting from April for month ‘01’.

     Getting the payment right?

It gives the example that an early/late payment for month ‘02’ (being 6 May to 5 June) in the 2013/14 tax year would have the payment reference xxxxxxxxxxxxx1402 with ‘1402’ added to the 13 character Accounts Office Reference to give the full 17 character payment reference.

The guidance points out: “HMRC will assign it to the wrong tax month if the reference is incorrect.” [Our emphasis.]

The simple fact is that to ensure PAYE payments and liabilities always balance it is essential to use the full 17 character payment reference on all payments of PAYE to HMRC, regardless. Not doing so means basic payment discrepancies cannot be eliminated when attempting to reconcile a client PAYE account. (It also puts agents and clients at risk of any delay on the part of HMRC, or its payments partner Citi, in reconciling employer payments received to their PAYE accounts.)

And this is the point. While payroll bureau and practice staff managing client PAYE know this, employers largely don’t appreciate their PAYE payment reference is not fixed. That in fact it changes with every payment!

Why is this significant? Because large number of employers who outsource their payroll to agents still retain responsibility for paying HMRC in-house and schedule those payments themselves, often with incorrect payment references. It’s how PAYE was always managed: a clear division of responsibility between agent and client. One does the statutory return, the other makes the payment.

The problem is that this old way of working doesn’t work for RTI because all payments have to align with payroll reporting. Payments to employees of course, but also payments of PAYE due with the correct tax month.

It doesn’t matter how rigorous the agent’s processes are, if their client is making payment of PAYE to HMRC with an incomplete or wrong payment reference each month, the client’s PAYE account will never balance. It only takes one misallocated payment by HMRC to throw everything out.

This is becoming a real compliance issue. February’s announcement from HMRC that late payment penalties would continue to be ‘risk-assessed’ and still cannot be automated suggests a significant number of PAYE account liabilities may not balance with payments. (This in spite of the £100 tolerance HMRC allows by default on any PAYE account discrepancy.) The obvious explanation is that too many employer payments of PAYE are incorrectly referenced and being credited to the wrong PAYE period. The issue also featured in HMRC’s February Employer Bulletin which explained: “We have been writing or phoning many of our customers who have used an incorrect reference to pay their tax and/or National Insurance contributions (NICs).”

Data shared with CreDec by payroll bureaux suggests that well in excess of 10% of all their clients may have PAYE account errors of which the majority are attributable to payment reconciliation issues. Agents whose payroll clients decline to let them schedule client PAYE payments on their behalf, ensuring they are correctly referenced, is one thing. For agents without an RTI BACS payments capability – who cannot offer to combine RTI reporting with a payment service for their clients to guarantee correct referencing of PAYE payments – the situation is more uncomfortable. Who is responsible for identifying the payment mis-allocation errors at HMRC, the client or the agent?

Even without automated penalties (yet) the time costs for agents and employers of having to contact HMRC and attempt to reconcile PAYE accounts and identify the misallocated payments represents a readily avoidable burden. CreDec systems automatically add the correct 4 character PAYE period to the Accounts Office reference using the 17 character reference every time. We don’t do payroll, but payments are our thing.

RTI changed nothing and everything.

To find out more about CreDec payment solutions for your business or practice, including RTI BACS payroll payment services for your payroll clients, get in touch at www.credec.com/rti-bacs or call us on 0871 350 0490

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