The rules and regulations concerning PAYE are complex and many SMEs find it difficult to cope with this essential, but often troublesome, administrative burden. From April 2013 Her Majesty’s Revenue & Customs changed the rules so that all companies who employ staff under the PAYE system have to file all PAYE information in real time (RTI)
All companies in the UK must adhere to these new rules and will have to obtain and install the correct software in order to cope with the changes. For some SMEs the cost of purchasing the correct software and the fact that this information has to be filed on a monthly, rather than annual basis, is a cumbersome addition to the general day to day running of the business. HMRC say that employers can download basic PAYE software from its own website, but then goes on to admit that this software will not produce payslips or be able to make any deductions should an employee have an attachment of earnings. The correct NICs and PAYE deductions can be made through the government’s free download, but this system is onely recommended for companies that employ up to nine people. The amount of information demanded by HMRC in order that an SME’s payroll system is compliant includes providing data on any employee who may have left the company within the relevant tax year.
The HMRC website recommends that employers who do not have suitable software might wish to consider outsourcing their payroll function. The benefits of outsourcing this task mean that all the correct payroll information will be sent electronically to HMRC, on a monthly basis, by a sophisticated software system. The essential bookkeeping tasks can still be performed in-house, but the outsourcing provider will carry out the actual calculations and adjustments and submit that information to HMRC. Eventually, HMRC intends to have a map of every PAYE employee in the country, but the cost, in terms of both finance and manpower to some smaller SMEs, is onerous at a time when many are fighting for survival.
In 2012, The Guardian newspaper claimed that there were 1.2 million companies paying their staff under PAYE and for the ones that offered bonus and commission patterns the recording of all the salary data on a monthly basis has to be kept up to date. The increased use of electronic data means that computers must be backed up at all times and also kept secure, under the terms of the Data Protection Act. Some SMEs outsource at least some elements of their payroll obligations to a Payroll Bureau, which will work with the figures supplied by the in-house bookkeeper. There are other companies that hand over their entire payroll obligations to a Managed Service. The importance of communication between the SME and its outsource agencies is vital. Many SMEs believe that the cost of using this type of service provider is negligible compared with managing their payroll themselves. HMRC has stated that it will charge penalties for any company that is late in sending the new monthly returns, so this has to be reflected in any contract between an SME and their chosen payroll provider.