While Baker Tilly supports any changes to make tax affairs simpler and less burdensome for employers, HMRC’s proposal to allow connected businesses to pool their PAYE functions could create larger targets for compliance visits which could yield higher penalties.
Employers who choose to pool their payroll resource as a single point of contact for PAYE and NIC payments should see benefits such as economies of scale and savings of duplicated costs.
These savings can in turn be channelled into better-quality resource so providing more reliable compliance. Larger businesses with multiple contractual employers are likely to support this proposal as sharing the administrative costs and centralising knowledge and resource will reduce the overall burden of compliance.
However, there are also a number of risks. These include creating larger targets for HMRC to review and penalise.
The potential for greater geographic separation of operations from payroll could impede the flow of information and thus increase the scope for compliance failures.
There are also concerns about the costs of implementing the systems and other changes necessary in a project of this size. These could be prohibitive for HMRC, particularly as they come at a time when other major payroll systems changes are imminent.
Martin Benson, Employers Consulting Group Partner at Baker Tilly explains:
“If HMRC reviews an employer’s records and finds that five employees have claimed reimbursement for their travel between home and work, the larger the payroll in question, the larger will be HMRC’s assumed total for the whole workforce in calculating the arrears of tax, interest and penalties.
"If several employers are pooled together, HMRC will base their estimate on the total number of employees, instead of just those employed by one of the pool members.”
George Bull, Senior Tax Partner at Baker Tilly comments:
“While we welcome any change that will reduce the tax burden on employers, HMRC has a duty to organise these changes in a way which recognises the colossal demands being placed on employers.
"What with Real Time Information, auto-enrolment, new tax/NIC charges under ’disguised remuneration’, and now PAYE pooling, many employers will suffer change fatigue and limit themselves to the minimum required by law.
"If HMRC wishes to achieve the maximum benefit from all these innovations, then they should implement a single, coordinated programme of changes instead of what looks increasingly like a series of experiments in which employers are the unfortunate guinea pigs."
