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PAYE e-filing deadline shakes up payroll industry

11th Jan 2005
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While the transition to online filing is stimulating a lot of software sales and encouraging companies to consider outsourcing options, payroll managers, software developers and payroll intermediaries are being put under pressure by the deadlines, according to Kate Upcraft, Policy & Research Manager at the Institute of Payroll and Pensions Management.

Upcraft runs an advice line for institute members and commented that the level of PAYE online-filing queries has been climbing steadily in recent months.

"Online filing is our top query at the moment," she told AccountingWEB. "Everything has been thrown into the melting pot. A lot of people had to consider whether their current payroll systems could cope. The deadline has focused their minds on how much it's going to cost to comply and whether to turn to an intermediary."

Payroll and benefits can use up a great deal of company time and effort. With the move to online, many companies are questioning how they carry out these tasks.

"People are going back to basics to see how much payroll processing is costing them. If they outsourced, has it stacked up? If not, with the efficiency cost savings and incentives available with online-filing, they are considering bringing it back in-house."

Many people have their heads in the sand and make the assumption that other people will do it for them. "Just because you are using a bureau to process your payroll don't assume online filing will not affect you," she warned.

For example, unless they have appointed a bureau to handle remittances as well as the payroll processing, many employers will find that they have to file the P35 return, which is their declaration of the sums owed and paid to the Revenue after reconciling their payroll accounts for the year. Many are assuming this can still be sent on paper but it must also be filed online in order to avoid the penalty.

The "250 Club" affected by this May's deadline includes many large organisations who look at their payroll from a wider HR perspective and take a more strategic approach to the issues. However, some may find that the implementation costs are too high to meet the May deadline and opt to take the £3,000 hit of non-compliance penalty, Upcraft predicted.

"I think there will be more activity in the intermediary market when the 50-250 employee schemes have to file online next year. A lot of them may decide they can't be fussed with the transition and it's time to hand it all over to an intermediary"

While bigger employers have to make the switch this year, tax-free cash incentives are currently available for smaller companies who migrate early - up to £825 for companies with fewer than 50 employees who do so this year.

The outsourcing debate
Payroll lies at the heart of the outsourcing debate - as many practicing accountants who operate payroll bureaux will tell you, it is precisely this sort of non-core activity that you should consider parcelling out to a specialist who can carry it out more efficiently for you.
It sounds like good business logic, but as Upcraft's warning about P35s illustrates, there can be hidden catches for the unwary. Regular horror stories such as the supply chain debacle at Sainsbury's and reports of troublesome transitions have kept the in-house/outsource debate rumbling for ages.

If it is going to work for you, you need to know exactly what you want and how much it is going to cost to process each payslip - bearing in mind any additional charges for corrections, management reports and even stationery. All of these will need to be set out in a Service Level Agreement.

Aside from costs, management control is another area for debate. If your accounting system links to the payroll module, the outputs can be pulled through for financial reporting too. Of course, many bureaux may be able to link to your finance systems too, but you will need manage the security issues and be aware of extra costs involved.

Further information

  • IPPM Special Interest Group
  • Inland Revenue PAYE Online services (Internet)

    As part of our preparations for the PAYE e-filing migration, we will be running regular articles on the subject in the coming months, which we will compile in a special email supplement in February. How prepared are you and is outsourcing or in-house processing better for your organisation? Use the Post a Comment button below to share your thoughts with the rest of the online community

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    By AnonymousUser
    27th Jan 2005 11:25

    Pegasus offers a definitive guide to online filing
    Pegasus has recognised the levels of uncertainty regarding the forthcoming legislation and produced an Inland Revenue approved Online Filing Guide that explains the whole process; providing valuable advice to ensure companies of all sizes fully understand this new initiative and are equipped with the right tools to meet changing legislative requirements.

    The Pegasus Online Filing Guide outlines the simplicity of adopting this new method of working. Sending and receiving information online is secure, convenient, quick and straightforward, offering a more reliable and efficient alternative to traditional paper-based systems. In addition, the costs involved with the processing, storing and posting of documents to the Inland Revenue, the administrative effort associated with paper returns and the chance of data entry errors or information being misinterpreted are all reduced significantly.

    However, before any of these benefits can be recognised Pegasus stresses that companies must look at their current procedures and begin to plan the necessary changes to their operational practices to ensure compliance with the new legislation. As part of this process, it will be essential that organisations review the functionality of their incumbent payroll solutions and systems; assessing the extent, to which they require modification, upgrades or more fundamental change.

    In addition to providing useful links and contact points, the Pegasus Online Filing Guide provides a step by step review of the new procedure including a general breakdown of the changes; details on how the Inland Revenue will assess each company; an overview of what is expected in terms of key dates and how to complete online returns effectively within the strict guidelines; how to manage exceptions, handling end of year procedures and how a payroll bureau or specialist software solution can make online filing simple and painless.

    To obtain a copy of the Free Pegasus Online Filing Guide, please visit filing or e-mail [email protected].

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    By riches-watts
    11th Jan 2005 20:07

    PAYE returns online
    Our firm (Chartered Acountants and Chartered Tax Advisers) has embraced the opportunity to do as much online as possible. We have submitted a majority of our clients' 2003/04 tax returns online, and are gradually signing up clients to submit their 04/05 PAYE returns online. The full £250 will we understand go direct to the client - by being added to their Inland Revenue PAYE/NIC account to deduct from future payments or for the client to request to have refunded direct to them. We will need to make a charge for the work, but expect this to be less than dealing with paper returns.

    Now to the problem. As with self-assessment tax returns the main problem is getting the client onto the Inland Revenue's list of our clients. It has taken 3 attempts to submit the first batch of forms FBI2. Initially we included the wrong Agent ID - we now know there are two different codes which go by almost identiacal names. Then the forms were all again rejected and returned to us by the Inland Revenue, yet they do not know why! After several phone calls, gradually getting more irate, and eventually speaking to a contact higher up in the IR organisation, it has after 2 months been sorted (thanks Bill at Leicester!).

    However, if all agents are expected to use the system, the registering of agents and also their clients as clients of the agent needs to be far slicker. Similar problems are happening all the time with the self-assessment online system, but at least here at worse we send in a paper return - with FBI for PAYE the client stands to lose the £250.

    Why cannot the Inland Revenue have a single office which just deals with 64-8s and FBI2s for the whole country, and process each one within a week of arrival - yes, we'd let you have a whole week - rather than the month or even up to a year, then losing them as often occurs at present. To be really contentious, how about updating the NICO records in Newcastle at the same time, so we don't have to send in separate 64-8s to them? Now that would be revolutionary. It would be refreshing if the Inland Revenue could listen to agents' complaints on this and take some action, otherwise FBI for PAYE may be very slow to take off.

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