Account Director at Modulr
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Faster Payments technology could speed up HMRC payment admin
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Time to transform HMRC payments


Modulr's Tom Kelly argues that eliminating the headaches and delays associated with paying HMRC could free accountants up for more valuable work. 

12th Oct 2021
Account Director at Modulr
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After a tough 18 months, accountants have their hands full helping clients rebuild their businesses. The 12 month delay in the implementation of Making Tax Digital for income tax (MTD ITSA) will give the profession time to focus on more immediate priorities, but time is still in very short supply.

While accountants continue to support business recovery efforts, there’s another drain on their resources that too often falls under the radar - paying HMRC.

HMRC payment headaches

If left untouched, HMRC payments can turn into a time-consuming nightmare. The biggest pitfall is the inherent time lag between paying and the payment being processed. For instance, if companies pay by Bacs (an electronic transfer directly from one bank account to another), they need to allow three business days for the payments to be processed. Direct debit payments also take three days to process.

These time lags can lead to allocation issues at HMRC’s end. On top of that, accountants and their clients don’t always communicate effectively when it comes to managing the payment workflow. As a side effect of these issues, HMRC wrote to 1,200 small businesses in the summer demanding unpaid employment taxes accompanied by warnigs of hefty penalties for those businesses that fail to adhere.

The main issue standing in the way of clear communication between accountants and their clients is access to real-time data. By not having up-to-date technology, nor using the cloud to manage ongoing changes and communication about HMRC payments, accountants face lengthy delays. They also end up relying on multiple file versions to transfer payment documents. Not only does this slow the process down and create more work, it also increases the risk of missed deadlines and increases the risks of human errors and fraud associated with manual entry.

Solving the HMRC payments dilemma

So, how do you actually solve this conundrum?

The most obvious answer is adopting an effective payroll solution. Not only does software make the process more efficient, it also lets accountants take the payment workload away from their clients. With time saved managing HMRC payment and payroll workflows, accountants can deliver more strategic, higher value advisory services to their clients.

Another option is Faster Payments, which move funds between customers’ different bank accounts in just seconds – a significant improvement on the three days taken by Bacs. In the first quarter of 2021, 763m payments were processed by the Faster Payments System, a 15% increase on the amount processed in Q1 for 2020

Paying HMRC online by card, by Bacs or by cash or cheque at a bank are really slow by today’s standards and can cause havoc when contending with payment deadlines. If a deadline falls on a weekend or bank holiday, for example, accountants must ensure payments reach HMRC on the final working day before the deadline to guarantee it goes through. And as taxpayers have learned to their cost, missed deadlines can result in substantial fines from HMRC.

With Faster Payments, accountants can pay HMRC within two minutes directly from their chosen payroll software. The simplicity and convenience of this payment method allows last minute transactions to be made without having to worry about penalties for overdue payments.

Let’s stop the nightmare

Paying HMRC shouldn't be a nightmare. Accountants and their clients simply do not have the time to waste on payment delays, nor the spare cash to accommodate hefty penalties. So, while the industry continues to evolve into digital innovation – for example with the introduction of MTD - we need HMRC payments to keep pace. Accountants need effective processes, like Faster Payments, that can streamline and facilitate the recording of all payments so that they can help their clients - and themselves - navigate the changing landscape successfully.

Replies (3)

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By Hugo Fair
12th Oct 2021 18:50

The 2 bugbears of paying HMRC have remained unchanged since what feels like time immemorial ... and have nothing to do with remembering to pay them or the time taken for the bank transfer to be 'cleared' in HMRC's account (both of which are true issues but really very minor).

Issue 1: the inconsistent manner with which HMRC requests each payment to be accompanied by a unique identifier. A perfectly reasonable request, but it's time that the methodology for acquiring a 'payment ID' (and the structured format of the code) were made consistent & transparent.

Issue 2: the way in which, despite those payment IDs, HMRC (or its not-so intelligent AI) elects to apply your payment to a different tax account ... or indeed spread it around a multitude of other accounts - making it near impossible to track it, let alone ascertain taxpayer's overall position.

If those issues were tackled/resolved, then there'd be some point in fine-tuning a system to remind you when to pay and (HMRC willing) be allowed to do so via Faster Payments.

Thanks (4)
By colinstewart
14th Oct 2021 12:10

Oh Joy! Where shall we start with this one!
(a) There is the issue of card charges being added to payments so we can't easily match payments made by clients to the liabilities.
(b) There is the issue of the one month direct debits.
(c) There is the issue that some Clients do not understand the difference between CT, SA, PAYE, CIS, VAT, and then they have to face CGT pay and File.
(d) Then there is the issue of reference numbers!
(e) Then there is the issue of incomprehensible annual PAYE statements, which seems to extend to anything inculding the word 'Statement' produced by HMRC.
(f) The recent open banking links do work, but many clients just don't get the 'tax account' thing, isn't that why they have an accountant?

I once had a DMU officer bang on my office door demanding a CT payment (and you all know I paid it) I gave him a screen shot of the HMRC page showing I had paid it, and that they had allocated it to the wrong year! 'Sorry, can't accept that', he said! The matter went to Court (Northampton) and a couple of days before the hearing a Court clerk phoned me and said 'You're an accountant, aren't you?' Yes, I said, 'so, you've paid this on time, haven't you?', Yes, I said.. 'leave it with me' he said.... and I heard nothing more !

Is it beyond the whit of man to devise a simple method for HMRC's customers to pay their bills? Everyone else seems to maange it with consumate ease, and then they wonder why there is a tax gap :)

Thanks (3)
By AdamMurphy
15th Oct 2021 00:16

With NEST I can submit a client’s contributions report and collect payment through my software. Why can’t hmrc do this with PAYE?

Thanks (0)