Size doesn't matter

It was just a year ago that the government was promoting a voucher scheme to help small employers "take advantage of the range of products and services available in the market to assist them". However, the DTI's plans to give £50 and £200 vouchers towards the cost of payroll software, services and training were permanently archived when the Revenue and the DTI jointly announced that "the idea of the payroll voucher scheme did not go far enough in providing the on-going, face-to-face support that new employers said they wanted."

It was just a year ago that the government was promoting a voucher scheme to help small employers "take advantage of the range of products and services available in the market to assist them". However, the DTI's plans to give £50 and £200 vouchers towards the cost of payroll software, services and training were permanently archived when the Revenue and the DTI jointly announced that "the idea of the payroll voucher scheme did not go far enough in providing the on-going, face-to-face support that new employers said they wanted."

Change of heart

Instead, many of the other associated proposals have been introduced. Tax offices now have Business Support Teams to help with all payroll matters for new and small employers. The advisers provide free face-to-face help, run half-day workshops and check that payroll systems operate accurately. (New Employers Helpline: 0845 60 70 143)

As part of the 2000 Budget, the Chancellor announced that the Revenue would be introducing a formal testing and accreditation process "in early summer". In the past, the Revenue has never been prepared to recommend any payroll software or systems. Now, in a complete policy u-turn, those systems and services that can demonstrate that their systems meet defined payroll standards, including the ability to exchange data electronically with the Revenue, will be actively promoted among small and new employers by the Business Support Teams.

Why this volte-face? Among the responses to the DTI's consultation paper on "Developing a Payroll Service for Small Business" was the view that "the 'subsidy' that is being proposed would be effectively diverted to a more outcome-focused scheme, with greater emphasis on electronic exchange of data."

Electronic emphasis

Whether or not that suggestion was the source of the idea that any new scheme should include electronic data transfer capabilities, the Government has certainly committed itself to making 25% of its services available electronically by 2002, 50% by 2005 and 100% by 2008. The Revenue has a key role to play in achieving those targets and, as a result, the electronic exchange of data features large in the standards for payroll software published by the Revenue in June. Payroll systems will only be approved if they allow for the electronic exchange of data over the Internet or by Electronic Data Interchange (EDI) and for making payments to the Collector electronically.

There are serious doubts over the relevance to small employers of accreditation and of electronic data exchange and payment facilities. The really difficult questions are:

Is it more important to accredit software for its accuracy or for its ease of use? The standards state that the Revenue will not accept any responsibility for payroll errors due to the incorrect use of an accredited product. Does that mean that the employer will not be held responsible if it produces inaccurate results when used correctly?

Of what benefit is electronic data exchange to small employers when they have little enough time even to run the payroll? Payroll is already far too complicated for companies without a dedicated payroll administrator and, with few employees to pay, the use of electronic exchange facilities will be too infrequent for it to be used reliably.

Why would small employers, or of any size, want to make their payments to the Collector electronically when they can get several days' extra interest in the bank by paying by cheque? The Revenue's generous offer is that employers with fewer than 10 employees (800,000 of them) will receive a one-off discount of £50 if they submit their annual P14/P35 returns and make their payments to the Collector electronically. Customs & Excise, however, have a better understanding of economics and allow businesses an extra seven days if they pay their VAT by BACS, CHAPS or bank giro credit. If the Revenue really want to promote electronic payments, they should extend the deadline for payments to the Collector to the 26th if made electronically, and leave the 19th deadline for cheque payments.

Misguided plans

What do small employers really need? They need to understand what they are doing; to that end they need training; and they need immediate support when they have problems. All of those needs are provided by the Business Support Teams attached to their tax offices. However, we should not be misled into thinking that the accreditation scheme has anything to do with helping new and small employers. Rather, it has everything to do with enabling the Government to reach its targets for electronic communication. Payroll system developers will have little option but to go along with the scheme and this will effectively force all payroll software to provide electronic data exchange. Whether employers use it or not is irrelevant; the Government will have achieved its objective of making its services available electronically.

A golden opportunity

Whatever the motives of the Government and the Revenue, the payroll system developers are not generally complaining about accreditation. For those who are, or want to be, in the business of providing software and services to very small companies, accreditation is a once-in-a-lifetime opportunity. How to reach the hundreds of thousands of small employers with your product has long been a conundrum. Now it is solved; inclusion in the lists given to employers by the Business Support Teams is the best marketing opportunity around. Even those with products aimed at larger companies cannot afford to miss out; their systems are used by many bureaux and accountants who look after small employers. Accreditation is a must to stay in the running.

Supplier views

Whatever side you take on the matter, consider the following quotes taken from submissions from many of the suppliers whose details appear in the listing. Then start planning for accreditation.

• The Revenue are attacking the wrong problem. Instead of messing about, they should be simplifying tax and NICs.

• Payroll software will only help if the operator has the necessary ability and knowledge to use it.

• Many small businesses will buy payroll software, do it themselves, fail to pay for the upgrades and then wonder why it all gets in a mess. (That of course assumes they realise it!)

• The Revenue's test pack is quite poor, written by an organisation that doesn't run payroll live.

• Inclusion of EDI etc. will make the software too expensive for small companies. The Internet option is simple to operate and less expensive.

• Any method of achieving excellence within the payroll profession should be mandatory. Accreditation will force a shake-up in the software industry whereby many companies will rethink their payroll strategy.

• The Revenue do not have the necessary expertise and understanding to provide a payroll service. They have their work cut out to keep up with their own obligations to notify us of the changes in rules and calculations.

• Over the years we have encountered many systems which calculate statutory deductions in non-standard and erroneous ways. The implementation, therefore, of single source tests can only be beneficial to all suppliers and customers alike. For our part we will submit our products to these tests at the earliest opportunity.

• Software never stands still. An unquestioning reliance on a piece of accredited software may be a step back rather than a step forward.

• Accreditation is likely to be a strong selling point for any companies who achieve it. Small companies will probably come to expect it as a basic starting point when considering payroll software in the future.

• Good software is not about what it does, but how easy it is to do what it does. Small employers need friendly software, not sophisticated software.

What's new for small employers?

Small businesses satisfy their payroll requirements in a number of ways. They may use the Revenue's P11 form, or proprietary alternatives, and the tax and NI tables. Others may short-circuit the tables by using a payroll calculator. Some payroll software is designed with small companies in mind, and many employers prefer the peace of mind that comes from giving the job to a bureau or accountant.

Many bureaux now offer Internet submission as a means of collecting pay data prior to processing.

Of greater potential is the ability of companies to rent software from an ASP, an application service provider. The company logs onto the ASP's server, direct or over the Internet, and runs the software as if it were running locally on a machine in the office. The user is in full control of the software and the ASP has no active involvement with the user, other than providing a support desk. The ASP may be involved, however, in making payments to the Collector using BACS, or in submitting year-end returns electronically, where processes external to the rented system are necessary.