The Brave New World of PAYE – Real Time Information (RTI) - started with a whimper rather than a bang. To be fair, the burden of anxiety and expectation ahead of the biggest change to payroll practices since PAYE's introduction in 1944 was overwhelming. The principle was simple, but inevitably the execution was complicated, and – initially at least – plagued by teething problems. Under the new rules, employers must report PAYE in real time – i.e. each time they pay their employees – rather than yearly. The idea behind it is to give HM Revenue & Customs (HMRC) a much more accurate, and up-to-date, picture of both PAYE and National Insurance (NI) payments made. HMRC argues that this will improve the operation of PAYE for employers, employees and itself. It accepts that some companies will incur costs in the move to the new system, but insists the streamlined process will ultimately save them both time and expense. In practical terms this means that employers must make a submission with details of each employee's PAYE and NI payments on or before the day that they are paid (whether weekly or monthly). At the end of the year, they still have to produce a P60 for each employee, though the final "return" will now be just another declaration.
Teething problems
The first few weeks after the regime came into force in April were marked by computer glitches, and HMRC hiplines wilted under a deluge of enquiries.
But a more serious, inherent problem soon came to light. The system simply couldn't cope with annual PAYE schemes – i.e. those where employees are paid only once a year.
When the RTI system went live, HMRC had no way of identifying such annual schemes. It soon began shutting down schemes in which staffs were not being paid monthly – on the assumption that they were no longer active. This caused chaos, and we at VAKT Accountancy have spent many an hour on the phone to HMRC getting it to reinstate annual schemes that had incorrectly been declared dormant.
For some time the only sure way to prevent an annual scheme being closed down in error was to submit a nil Employer Payment Summary each time a month went by in which staffs were not paid.
HMRC hurriedly brought out a fix in July, allowing annual schemes to be registered as such. Companies affected now need to submit a Full Payment Submission just once year, when their employees are paid.
HMRC anticipated potential problems better at the other end of the scale. Small businesses (i.e. those with fewer than 50 employees) that pay their staff weekly, but only run their payroll at the end of the month, were granted a dispensation allowing them to send the required information monthly rather than weekly.
This had given some breathing space to small businesses that needed time to adapt to reporting every payment in real time – but the relaxation ended on 5th October 2013.
What began as a barrage of grumbles following the introduction of the regime has eased. The worst problems appear confined to computer glitches, though there are reports of some tax codes failing to take into account perks like company cars.
SMEs count the cost
However many SMEs are counting the cost of complying with the reforms. In September, we conducted a survey and found that nearly a third (31%) felt the changes were "unnecessary" while close to a quarter (25%) branded RTI "frustrating". More worrying perhaps is our finding that 39% felt the reforms had added a cost burden to their business, while 23% said that adjusting to the new system had been time-consuming.
Such growing pains are inevitable for a regime of this size and complexity. Nevertheless, there are potential flaws. The system could end up overtaxing people with two or more seasonal jobs, and those changing jobs who get their last pay cheque from one job after their first pay cheque from the new one; HMRC might think they had second jobs.
At VAKT Accountancy we have been filing returns for many clients and have an excellent grasp of how the system works and how to avoid its pitfalls.
It's too early to describe it as a roaring success, but we have successfully navigated our clients through the change – and in a few years we may come to wonder what the fuss was about.
Key Contact
John Wilson Partner
Tel +44(0) 2034881414
Diran.koleade@vaktco.co.uk
In London and the South East, the general perception persists that the banks are still severely rationing loans to businesses, especially the SMEs on which so much employment and economic growth depend.
In reality, the lending famine is over and banks are actually ready to help. The only difference is that, this time, banks are not going to be handing out credit easily and will be especially concerned about incurring too many losses which they will have to write off in the future.
According to most chartered accountants in London, the problem is that too many smaller businesses have very little idea about how the lending process works and blame their bank for being turned down when, in fact, the main culprit is their own lack of preparation. Lending officers are actually human and tend to view applications in very much the same way as the investors on BBC’s Dragon’s Den television programme.
If you are trying to raise some finance from your bank, you could do a lot worse than to watch a few of these programmes to see how the investors, who are of course experienced entrepreneurs themselves, judge each proposition that comes before them.
There are basically 3 stages to the application process and, if you can clear each hurdle satisfactorily, then you have every chance of success.
The first thing you should attend to is the sales process. It stands to reason that people will only believe in your idea if you do yourself so be prepared to give a lively, passionate delivery of the plan you have in mind. If, after this, the response is negative, then the chances are that your idea is a non-starter anyway and the bank is probably saving you a lot of time, money and heartache by turning you down. Remember these people vet businesses for a living and what they haven’t already seen in the business world probably isn’t worth knowing.
Secondly, you should always back up your enthusiasm for your business proposal by demonstrating a personal commitment that involves hard cash as well as effort and enthusiasm. If you haven’t made any significant cash investment and are not prepared to risk any of your own money, the bank is not going to be convinced that you have the necessary commitment to back up your enthusiasm. It doesn’t have to be a huge amount in absolute monetary terms but an amount that is significant in proportion to your own personal circumstances. Bear in mind that, if you can’t demonstrate any tangible commitment, why should the bank?
Finally, spend plenty of time on preparing a business plan that is realistic and allows for a reasonable shortfall in your projections which will naturally be regarded by others as erring on the optimistic side. Be sure to demonstrate that you are cautious and conservative in your forecasts. It will work wonders if you can add say 10% to your outgoings as a contingency in case things don’t work out quite as well as planned. Don’t be shy about asking for as much as you may need.
Bear in mind that, in most cases, your contact at the bank will only have discretion up to a certain figure and that amounts larger than his or her limit will have to be cleared by a credit committee. The latter will depend heavily on what your contact has to say. This is why it is vital that he or she has a detailed and realistic business plan to sell from and there are plenty of chartered accountants in London who can help you put such a plan together or at least give you a template to work from.
Key Contact
John Wilson Partner
Tel +44(0) 2034881414
Diran.koleade@vaktco.co.uk
If a business is in trouble, techniques for affecting a turnaround are fairly simple and straightforward but they do require disciplined and often ruthless execution.
A complete business failure resulting in bankruptcy is not a pretty experience for anybody including your staff so do not flinch from losing a leg if it means the body as a whole can survive.
Key Contact
John Wilson Partner
Tel +44(0) 2034881414
Diran.koleade@vaktco.co.uk
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