Employers should brace themselves for additional red tape and extra expense, writes chartered accountant Ian McDougall
THE Tory/Lib Dem love pact arrived in 2010 trumpeting itself as a coalition for business and promising “red tape bonfires”.
However, it seems the reality is quite different, with business owners facing yet more legislation and regulations to comply with which will ultimately take more time and cost more money.
Not really a bonfire, more a damp squib.
Among the latest legislative headaches for employers to deal with are changes to the workplace pension scheme and PAYE (Pay As You Earn) system.
Under the present PAYE system, employers deduct income tax and National Insurance contributions (NIC) from employees’ wages, add their own employers’ NIC and pay the total to HMRC every month or quarter. The employer then completes an annual return form (P35) at the end of each tax year and only at this point does HMRC become aware of the amounts due by each employee and the company as a whole.
Herein lies the problem for HMRC. It does not have visibility over the tax and National Insurance being deducted and paid to it, therefore tax payers and employers may be underpaying throughout the year.
Real Time Information (RTI) commenced for most on April 5, 2013, with some late last minute concessions for small companies which pay staff weekly, allowing them until October 5 to comply in full.
This new system requires employers to submit information regarding PAYE/NI deductions when or before each payment is made. In essence, a business that pays staff monthly will now have 12 returns to file as opposed to just one.
Can anyone see the reduction in red tape this new system will bring? Neither can we!
As with most changes to taxation legislation, HMRC has taken the opportunity of grabbing a penalty should the return not be submitted on time, which could now mean 12 penalties instead of one. This penalty regime has now been delayed for late returns until April 2014, although incorrect returns will continue to be penalised.
Once you have mastered the new RTI scheme, the Pensions Regulator will keep you on your toes with changes to workplace pensions which were introduced in October 2012 for the largest of employers and will affect the majority of businesses in the next few years as it is gradually phased in for SMEs.
The official government speak is that these changes “will ensure that all employees have access to good quality pension schemes”. The actual reason is that private sector pension schemes are being closed on a daily basis and the UK government really doesn’t like the thought of picking up the tab in 30 years.
The solution to this, therefore, lies somewhere between the employee and the employer paying.
The scheme will require all employers to register their employees in to a Qualifying Workplace Pension Scheme (QWPS). The employee must earn at least the personal allowance (£9440 in 2013/2014), be 22 years old and above and have been employed with you for three months. This is very important in the leisure sector due to the amount of movement by employees and part-time staff.
Now, assuming the individual has been working for you for three months and does earn above the £9440 threshold, they have the right to contribute to this pension scheme and the employer must also contribute.
Initially the employer is only required to pay 1% of the employee’s salary but this will increase to 3% over the next few years. The intention is that 8% will be contributed (employee contributes 4%, the employer 3% and the Treasury 1%).
It makes sense that an individual should pay towards their retirement, but for many small businesses 3% of payroll costs could be as much as 10% of their bottom line profit and this could become a major factor in an employment decision at a time when we are all being encouraged to employ new trainees and apprentices.
Employees can opt out of the scheme meaning the employer has no responsibility to pay a contribution, but before you download the form please note that employers cannot encourage staff to do this!
For many small businesses, contributing 3% of payroll costs could take 10% off their bottom line.
Many of the large employers already in the scheme have taken a responsible approach and are actively encouraging their employees to get on board. However, not surprisingly, some employers have been less than active in encouraging employees to join, one of those being a large UK-based hotel and restaurant chain. Is it any wonder why it is hard to attract new people to the leisure sector?
In summary, RTI is now live and requires attention; think about the new pension requirements or take advice thereon; and, most importantly, be prepared as this is going to cost your business money.
Image – Ian McDougall is the managing director of McDougall Johnstone chartered accountants.