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RTI may trigger more winding-up orders

27th Dec 2012
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Keith Steven, turnaround expert and managing director of KSA Group warned that the introduction RTI may lead to an increase in winding-up order petitions.

The gloomy scenario will come true, he explained, if companies don't start being honest about paying PAYE and employ good cashflow practices. 

Speaking at the Turnaround in 2013 event in Bristol recently, Steven highlighted the cashflow difficulties RTI would pose for some small businesses. 

"We work with some companies where there is evidence of understating PAYE each year," he said. 

"HMRC don't find out until year-end when they file their P35 and then there is a discrepancy. The company then applies for a time-to-pay deal with HMRC and they have some leeway to pay the outstanding PAYE," he added. 

Under the new RTI regime, employers will have to reveal their PAYE figures whenever a payroll is run and pay the outstanding tax by 19th of each month.

"Under the new regime, my understanding is you won't be able to do this anymore," Steven continued.

"If you lie about the submissions, what will HMRC do? If you file the PAYE due and the money isn't in your account, what's going to happen then? Sometimes companies in difficulty need to make decisions between paying wages, suppliers and PAYE and often PAYE comes last."

In Finance Bill 2013 consultations the government toyed with the idea of  merging filing and payment requirements, saying the submission of a return should trigger a payment, preventing employers from using their PAYE as a cashflow tool.

But they rejected this for now, saying it was a step too far at this stage, as HMRC does not want to make too many changes to the PAYE filing system at once.

Steven also said HMRC's RTI communication regime was lackadaisical towards directors and staff outside payroll departments.

In November, the Federation of Small Businesses released figures showing that a quarter of small businesses were unaware RTI even existed.

The insolvency practitioners urged businesses facing potential problems with RTI to get in touch with HMRC.

"I would advise those with concerns or who employ these practices to speak to HMRC now. Try and find out what's happening and find out the implications of late payment. Find out how the payment is going to be made and when it's going to be made and employ good cashflow planning in your business."


Replies (10)

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By ThornyIssues
27th Dec 2012 13:03

More unintended consequences

While I agree that PAYE should be paid when payroll is run, I would think that some companies, rather than risking the wrath of HMRC will either employ less staff to lighten the load or use temp employees who will be much easier to hire and fire. Even companies with a good handle on cash flow will at some time hit a glitch, will get their fingers burnt and the pain will make them take measures to avoid future pain.

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By Happy Up North Accountant
27th Dec 2012 19:56

This is bang on

Whilst I appreciate the many criticisms of this rather fundamental change I see first hand how some businesses - particularly those who have only recently hit the £1million plus turnover mark - have awful cashflow processes, despite all advice and input one can offer to combat this. I've seen a company who has not filled a P35 for three years running, paid the paltry penalties HMRC imposed and carried on accruing a monthly debt - some months not paying a thing and other months only paying HMRC's guess of their liability. The end result is a liability totalling nearly £200k and a winding up order 2 years overdue.

Yes, not every business is run in this unsustainable manner but more than many people think indeed are. To frank I'm sick of urine poor management who eventually have their companies wound up and whilst it's not considered particularly fashionable for a tax adviser to side with HMRC and favour more government imposed processes I think this change could be a positive step towards creating a more sustainable business culture in the UK.

I'd rather those who are fated to fall do so much sooner rather than being allowed to build up a lot of debt and the potential to negatively impact other businesses before being cut down.

That said I hope, and I sincerely doubt, that HMRC will not simply try to close down a company simply because they have missed a few months of payment due to unforseen circumstances. They would gain no support from our profession, government or the public if they did act this way

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Locutus of Borg
By Locutus
27th Dec 2012 20:44

Agreed, bang on

"We work with some companies where there is evidence of understating PAYE each year," he said. 

"HMRC don't find out until year-end when they file their P35 and then there is a discrepancy. The company then applies for a time-to-pay deal with HMRC and they have some leeway to pay the outstanding PAYE," he added.

This particularly rings true, as I've seen this quite a lot over the years.  The old trick of making 12 (small) payments on account every month with a huge balancing payment or negotiating a time-to-pay arrangement for the balance is common.

I suspect an ex-client from 5 years ago, now with turnover of circa £5m, still does it every year.  A subsidiary of another company that I used to deal with did the same trick last April, rolling over some £500k of PAYE and NI in a time-to-pay arrangement.  RTI may ultimately kill off both companies - although both have only survived by taking advantage of the slow PAYE reporting system.

It will be interesting to see what effect RTI has on the wider economy.  I can't help thinking there will be a rise in self employed "consultants".  Sure, they are really disguised employees, who will be deemed as such after a PAYE inspection.  But it might take 5 years for an "at risk" company to get an inspection.  That's 5 years of directors remuneration / dividends that can be enjoyed.

There will also probably be an increase in employers making off-payroll payments on account to employees, which can be "sorted out" at the year end.  These, of course, still ought to be reported under RTI, but the employer will assume that if they don't go through the payroll program they escape the RTI net.

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David Winch
By David Winch
28th Dec 2012 01:08

Understating PAYE during the year

I would expect that where an external accountant (or an insolvency practitioner) suspects that his client has been deliberately and dishonestly understating his monthly or quarterly PAYE figures and payments to HMRC, the accountant (or IP) will have filed a Suspicious Activity Report with his firm's Money Laundering Reporting Officer under s330 Proceeds of Crime Act 2002.

In my view this deliberate and dishonest understatement and underpayment by an employer amounts to a criminal offence (either the common-law offence of cheating the revenue, or fraud by false representation contrary to s2 Fraud Act 2006, or false accounting contrary to s17 Theft Act 1968) from which someone (i.e. the employer) has obtained a benefit.

Obviously that will continue to be the case where, under RTI, an employer dishonestly and deliberately makes a false return and underpays the true amount due.


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Replying to SteveHa:
By Nikolai
31st Dec 2012 12:10

Money laundering

HSBC have been found guilty of laundering hundreds of billions of pounds for the Mexican drug cartels and not a single person will be charged; one of the consequences of this is that as a practising accountant, I find the mere mention of money laundering regulations, when applied to our profession, leaves a very bitter taste in the mouth !

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the sea otter
By memyself-eye
28th Dec 2012 19:03


RTI prompts more MLR reports

Because of RTI, HMRC is swamped - and

Even fewer MLR reports get any further than 'being logged'

plus ca change......


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Locutus of Borg
By Locutus
30th Dec 2012 12:15

I have on a couple of occasions filed MLR reports where there has been deliberate under payment of monthly PAYE (later settled after the year end), as David has suggested.

However, nothing happened. The ex-client from 5 years ago that I referred to seemed to carry on doing it with impunity every year, as there was always a massive "social security and other taxation" creditor each year in their annual accounts - far higher than could have arisen from corporation tax and VAT for those years.

HMRC would have already had the information every year in any case, without needing an MLR report. But every year they still allowed the increasing tax debt to be rolled over into the following year.

RTI will be culture shock for such companies ... and a well deserved one too.

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By Happy Up North Accountant
30th Dec 2012 15:54

Same experience as 0103953

and I think that some of this has been due to the lack of capacity within HMRC to follow every report through - I assume they've improved vastly in this area in preparation for RTI, or at the very least have severely polished up their automated processes for reported under payments. The problem of course still remains for what happens on the scenario of a purposeful under reporting of the liability.

My hope is that not many businesses will in fact dabble in this practice!! But yes, for the minority who do let's hope the RTI structure and penalty regime provide a robust enough of a framework to prevent or at least discourage this from the outset.

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By philfromleeds
31st Dec 2012 15:34

Central Payroll

Keith Steven is one hundred per cent correct.

Paye has been helpful to businesses cash flow in the past. But wait for Central Payrol to come and it will. The employer will have to send the gross wage and employers NI to the government and the government will send the net wage to the employee. Employees with 2 or more jobs will start paying employees NI because it will be picked up by central payroll. See the dopes that run the country dont understand that currently it is a small incentive to find another low paid job to pair with another if one has an edge, that edge being no overall NI to pay.

But what about automatic enrolment or pensions which currently employers do not have the expense of. Decreased cash flow and increased staff costs what a combination.

The ressesion will go on and on.





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By ksagroup
03rd Jan 2013 09:42


There is absolutely no doubt that this will help focus minds of directors of companies that are in denial about their PAYE.  Hopefully it will ensure that directors take action early which will be in the best interest of everyone

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