Bearing the Standard

It was only three years ago that the Revenue was refusing on principle to provide any information about commercially available payroll software, not even mentioning by name the organisations that were able to give such advice. Instead, the CWG2 Further Guide simply said that advice could be obtained from accountants, financial advisors and professional bodies.

However, there is no such reticence in 2002. The Revenue is currently promoting ten suppliers of computerised payroll software on its website and through the Business Support Teams operating from each tax office. These suppliers are now receiving many enquiries about their products - compliments of the Inland Revenue. Suppliers have even reported that some employers have sent e-mail enquiries that show the e-mail addresses of all ten listed suppliers, indicating that the Revenue's list of approved suppliers was the starting point for these employers' search for new payroll software.

Why is the Revenue now prepared to promote these systems but not any others? The simple reason is that the developers have obtained approval for their systems under the Revenue's Payroll Accreditation Scheme. Accreditation confirms two things: that the payroll system meets the Revenue's Payroll Standards and that it has received Electronic Exchange approval.

Payroll Standard
Accreditation of payroll software was one of a number of proposals that followed from the publication of the University of Bath report in 1998 into the Tax Compliance Costs for Employers of PAYE and National Insurance. The report highlighted the disproportionate problems and costs faced by new and small employers. Following extensive consultation, the Inland Revenue decided that it could help small employers by recommending payroll software that could demonstrate full compliance with a set of payroll standards and by promoting such systems through the new Business Support Teams.

The accreditation scheme appeared in 2000, preceded by the first version of the Payroll Standards. The standards and the accreditation process showed that the Revenue had other clear objectives from the scheme, namely (1) the promotion of electronic exchange as part of its plans to make all Revenue services available electronically by 2005 and (2) the improvement in the quality and accuracy of returns, especially P14s, from employers.

Now in their third version, the Standards define precisely what should be expected from a computerised payroll system. It should be capable of calculating tax and NICs and handling statutory records, credits and deductions, doing so in accordance with the relevant legislation, the Revenue's employer guides and technical specifications for developers. However, the Standards do not set any rules about the design and functionality of payroll systems and, as a result, do not consider ease of use.

The electronic exchange requirements of the Standards are that a payroll system should be capable of submitting annual forms P14 and P35 electronically, either over the Internet or using Electronic Data Interchange (EDI). (See the article Live wire, in the December 2001 issue of Pay Magazine.) A payroll system should also provide the means to make payments to the Collector electronically.

The December 2001 edition of the Payroll Standards is available from the Revenue's website at www.inlandrevenue.gov.uk/ebu/payroll.htm .

Electronic exchange
Before they can receive formal approval under the Payroll Accreditation Scheme, developers must demonstrate that their software can successfully submit returns over the Internet, called Filing by Internet (FBI), or using EDI.

Developers obtain approval for EDI submissions from the Electronic Business Unit (EBU) in Shipley. Participation is free and, when they have successfully completed the tests, the developers are certified and listed in booklet EB4 PAYE-EDI 'Software Developers', available at www.inlandrevenue.gov.uk/ebu/eecs.htm . This process is not limited to P14s and P35s, and the developers listed can typically also submit forms P45 parts 1 and 3, P46, P11D, pension notifications, works number updates, and receive forms P6 and P9.

A less formal process is available for developers offering FBI facilities. The approval process is also handled by the EBU and approved suppliers, typically capable of submitting forms P14, P35, P38A and P38(S) are listed at www.inlandrevenue.gov.uk/efiling/paye/paye_software_forms.htm .

The Revenue also has its own Internet submission site that, by April, will offer a very extensive range of forms that may be completed on-line and also allow the Revenue to send coding notices and other forms back to employers. The registration arrangements to use this service were explained in the article Get Connected in the February issue of Pay Magazine.

Payroll accreditation
The Revenue's Payroll Support Unit (PSU) handles the Payroll Accreditation Scheme and is based in Newcastle Upon Tyne. The manager of the PSU, Steve Shields, explains the process that developers follow when seeking formal accreditation. "Before any developer registers," he advises, "they should run all of the tests available on the Revenue's website, obtaining guidance from our helpdesk. If they can successfully replicate all of test results they should sail through the accreditation process.

"Having registered and paid the £1,000 fee, each developer is assigned an account manager who sees them through the entire process and we agree a timetable for the submission of tests and our site visit. We issue a new test pack and evaluate the developer's results. If the results are satisfactory, we visit the developer's own premises to test validation routines and run some life cycle tests. Finally, we check that the developer already has approval for electronic exchange using FBI or EDI and then issue the license and logo. Under the terms of the license, the developer agrees to keep the system up-to-date with any statutory changes and, a year later, they start the process over again, using the version of the Standards in force at that time."

What problems do developers experience during the accreditation process? "The main pitfall," Steve Shields explains, "is that the developer doesn't run the Internet tests before registering and doesn't understand how to run the main test pack. Other difficulties arise if developers haven't included appropriate validation routines to ensure their system holds accurate data, like reduced-rate contributions being paid only by women, or contracted-out deductions only being possible if the employee's record includes a SCON.

"Then there are a few systems that do not have the necessary functionality to ensure statutory compliance, such as not handling directors' NICs or not automatically recalculating NICs retrospectively, perhaps because the developer's clients have never asked for such facilities. They must, however, be in place to obtain accreditation."

The future
In addition to the ten suppliers and twelve systems that are already accredited, nine more have registered and a further 46 companies have expressed an interest in accreditation, many of whom are currently working through the Internet test data.

However, some of the developers offering systems for large businesses are saying that they do not intend to pursue accreditation, claiming that their systems already meet and exceed the Payroll Standard. They may have to change their minds if, as is likely, government departments and local authorities start to demand accreditation on their ITTs.

A major influence on the development of electronic exchange will be the Government's reaction to the Carter Review. If the decision is to make electronic filing compulsory, the range of forms that payroll systems will be expected to submit electronically may have to be extended quickly. This would place a significant burden on developers and would involve extending the Payroll Standards to cover additional forms. The Carter Review does not propose any incentives to help developers undertake a rapid development of their systems, offering only the prospect of removing the £1000 annual fee for accreditation.

In any event, two further upgrades to the Payroll Standards are expected during 2002, one to bring in the recently published specification for SSP processing, another to implement the yet to be published specification for SMP processing.

In the meantime, what can employers do to get used to electronic exchange, or even prepare for compulsory filing? As even larger employers will find something useful in the Revenue's FIB submission site, it would be sensible to register for that service and just explore the site, look at the way that forms are completed, perhaps send in this year's P35 electronically and arrange to receive coding notices over the Internet. Electronic filing is the way forward and all employers will be involved.