Closer Inspection

Some months into their payroll software accreditation scheme, it is still difficult to understand precisely what the Inland Revenue is trying to achieve. As originally defined, the objective was to help new and small employers find a suitable payroll system, prompted by the Revenue's increasing awareness that payroll compliance is altogether too complex for small employers.

However, everything about the Revenue's payroll standards and the software accreditation scheme suggests that other motives are involved. The requirement that payroll software be capable of electronic communication with the Revenue suggests that the initiative is really intended to help the Revenue achieve its internal e-business targets. Certain aspects of the Standards indicate that another major objective is to improve the accuracy of year-end P14s. Further, the payroll systems that have already been accredited and those in the pipeline are not, judging by their sophistication and price, likely to be of interest to new and small employers.

First Off The Mark

So, just what is happening? Selven Group and Rutherford Webb were the first developers to obtain accreditation for their payroll systems. Frontier Software has nearly completed the process. What were their experiences?

Chris Towers, Selven's MD, was pleased with how well the exercise went. "It was a learning process for both parties", he told me, "but the Revenue staff wanted the Standards to work and were incredibly helpful and co-operative."

Selven's legislation manager, Keith Francis, was directly involved with working through the test packs. "The format of the tests gave us problems. Some test one situation for a single week or month; others cover many pay periods, even up to a year. But we would normally run test data for a number of employees at a time. A few queries and difficulties were quickly resolved but we found that the PSU staff were not payroll people, didn't really understand payroll concepts and had to refer some matters to their advisers."

John Rutherford, MD of Rutherford Webb, had similar experiences. "We weren't happy with the format of the test data", he confirmed. "It required us to write in the answers by hand, which could have generated transcription errors, and there were simply easier ways of doing it. We ran off P11s and reports instead, and they were happy with those."

John was also concerned about some of the things the Revenue expected their system to do, for example, to check that free standing AVCs and personal pension deductions do not exceed the statutory maximums. "They didn't understand that what they were asking for was impossible", he observed. "Another requirement was that we should validate the accuracy of information to be printed on P14s before we run them off. They seemed to be trying to force us to provide information for which there is no statutory requirement. It was also clear that their motive was to limit the hassle when they receive P14s with missing or erroneous data."

Frontier Software is nearing the end of the accreditation process. The company's MD, Michael Howard, is concerned about the Revenue's motives. "They are not simply trying to check that the software does the job ", he maintains, "but are imposing a higher level of functionality in order to minimise errors in the returns they receive." He gave, as an example, the requirement to calculate NICs retrospectively. "It is in the Standards," he says, "but it is too sophisticated a requirement for small employers. It is the same with EDI; you can get accreditation with it but the facility will not be of any use to small employers."

Ciaran Hogan, Frontier's QA Manager, believes that, despite the problems they have experienced, the accreditation process is for the best. "The Payroll Support Unit staff are learning as they go along. And, from a positive point of view, we have added a couple of new things to our systems, so the real winners are our customers."

Payroll Standard Accreditation Scheme

Before registering, developers are expected to run through the test data available on the Revenue's web site to see if they can replicate the answers. Once satisfied with the accuracy of their product, they register with the Payroll Support Unit (PSU) and, after agreeing a timetable, receive an accreditation pack. This comprises an invoice for £1000 and a new test pack, this time without answers.

The results of all the tests are checked by the PSU and, when the results are correct, two members of the PSU visit the developer's premises. Any problems identified during the site visit must be rectified. When the PSU is satisfied that the Standards are met in full, the developer is issued with a certificate and may use a special logo on their marketing materials. If the Standards are not met, the system will be rejected, although the developer may reapply. Accreditation is valid for one year, after which the process must be repeated.

The electronic exchange requirements of the Standards are tested under the Revenue's separate Electronic Exchange Certification Scheme. The payroll system must be capable of exchanging information electronically using either EDI or the Internet. Certification under this scheme is necessary before the system will be accredited as meeting the Standards.

Revenue Intentions

How would the Payroll Support Unit respond to these various criticisms and complaints? Steve Shields, manager of the Payroll Support Unit, tackled the issues one at a time.

Is accreditation really intended to benefit new and small employers?
"That was certainly the starting point, but the Revenue has realised that the slant is wrong and you will see that version 2 of the Standards misses out 'new and small'. Employers of all sizes can benefit from the assurance that accreditation provides."

Is accreditation being used as a means to increase the accuracy of P14 returns?
"Yes, but this was a clear requirement from the start. To meet the Standard, payroll systems must provide 'in-built error checking' that incorporates the validation rules set out in the magnetic media CA51/52 Technical Guide. If the validation checks are performed, the Revenue receives clean data, has fewer errors to check, and employers have fewer queries to follow up."

But isn't this simply a back-door way of getting information that employers are not required by law to provide?
"Not at all. Date of Birth, for example, is not defined in the Technical Guide as a compulsory field but, whether or not it is known, the entry on a P14 should be in the correct format. We cannot fail a payroll system if it meets the technical specification."

So accreditation will save the Revenue money by reducing the level of P14 errors?
"Yes, the Revenue's costs will be reduced and this was taken into consideration when the accreditation scheme was costed."

Tell us about the staff who make up the Payroll Support Team.
"The starting point was the former Contributions Agency team that worked with developers to get the NI calculations correct. When the Payroll Standard came along, the accreditation was put out to tender and our role would have been to manage the test data and the Standards. Then the Revenue decided to take accreditation in-house and we had the background to take it on. We currently have a team of 11, but the numbers will depend on the take-up of the scheme in the future."

And do your staff have payroll experience?
"Some members of the team used to work in the payroll sections of the Benefits Agency and Contributions Agency in Newcastle."

We are now on the second version of the Standard and the fourth version of the Internet test data. Will there be more changes?
"The Standard is developing all the time. From the Revenue's side, new requirements and changes of definitions come from our policy staff. Sometimes we find that employers do not work in the way we expected and we have had to make adjustments. We are listening to employers and developers, so the free standing AVC requirement has now been removed from the Standard and we are restructuring the test data to allow a number of situations to be tested together."

But is such a complex process as NICs retrospection really necessary?
"Setting up employees on the wrong table letter is very common, even among small employers, leading to major problems with P14 reporting. The way in which NICs must be recalculated when errors are found is set out in CWG2 and, even though most payroll software does not currently do it, it is a requirement and accredited software must be able to handle it."

How many developers have registered for accreditation?
"There has been considerable interest. So far, 13 have registered, 2 have been completed, 5 are going through the process and the other 6 have dates fixed for the future. We know of others who have talked to us and plan to register once their year-end work is complete."

Functionality

The latest version of the Standards are dated December 2000 and include a number of changes and clarifications from the first issue. Gone is any mention of helping "new or small employers" to find suitable payroll software. The purpose is now to help "employers" in general. Compliance with stakeholder pensions and student loan deductions is now included. More references are made to the relevant technical specifications and, significantly, to procedures defined in the CWG2 Further Guide. These mean that, to obtain accreditation, payroll software must be capable of

- recalculating NICs retrospectively when mistakes are made
- calculating PAYE and NICs on holiday pay using Methods A and B

IMIS Standards

Prior to the Revenue's standards, many developers relied on the standards and accreditation scheme operated by the IMIS Software Evaluation Service. The IMIS was the only organisation to tender to run the Revenue's accreditation scheme, but it was not accepted. There are many views as to whether the IMIS still has a role to play. Its own standards have been updated to incorporate the Revenue's standards. Some developers who are seeking Revenue accreditation have dropped their links with IMIS; others intend to continue with both.

John Pidgeon, manager of the IMIS Software Evaluation Service, is confident for the future. "We have had tremendous support from our clients", he says. "Our test packs and standards are highly respected and we have 24 systems accredited at the different levels. I doubt that the Revenue will find accreditation viable and I expect that they will decide to put the scheme out to tender again."

Although the Revenue has not explained why it rejected the IMIS' original tender, it may be that the Revenue had its own agenda from accreditation, namely to promote electronic exchange, enforce its specifications and procedures, and clean up the data arriving on P14s. It seems that the Revenue may reconsider going outside in the future but, by then, the Standards will be mature and its own view of the nature and objectives of accreditation will be clear.