At the time of the 2006 Budget Statement, HMRC published a document entitled Progress towards a new relationship: how HMRC is working to make life easier for business, which sets out the conclusions of research carried out by KPMG into the administrative burdens of the tax system.

HMRC has now released the detailed results of the findings from the KPMG research as presented at the end of the research project. Among the reports on the 28 main tax areas for which HMRC has responsibility is one that looks at the administrative burden on employers of the PAYE and NICs regimes.

The executive summary makes interesting reading and is provided below to give an indication of the findings that HMRC intends to consider. HMRC warns, however, that the report is only research and consists of raw material for onward analysis.

Employer Taxes - Executive Summary

Overview

The administrative burden of employer taxes is £;759m, 15% of the total burden placed on business.

The burden is made up as follows:

Just under one third of the total burden is external costs. This is because it is relatively common for businesses to outsource the operation of their PAYE/NICs processes. Smaller businesses will use their accountant to provide this service, while larger businesses will often use specialist service providers. Also, businesses that undertake the basic processes in house may still seek specialist help to comply with any of the more unusual obligations that are relevant to them.

The employer tax regime covers the tax on all remuneration provided to employees. The key processes included within this tax area are the weekly or monthly Pay As You Earn ('PAYE') regime and National Insurance Contributions ('NICs') calculations, expenses and benefits, and share schemes. The high burden figure is at least in part due to the fact that all businesses with employees have to comply with the main obligations.

Other than changes in tax rates and changes in individual circumstances of employees, the employer tax regime is a fairly steady state. As a result, there is a range of proprietary software available to businesses to deal with the tax calculations and a large outsource market.

Observations from business interviews

Employer taxes are a common area for business complaint. This in part reflects the burden - even though the process can be managed, possibly with the assistance of outsourcers or software, there is still a considerable burden in complying with the tax obligations. However, businesses also feel that the system is too complex, a common irritation being the two sets of rules that apply to PAYE and NICs. This causes a perception of unnecessary complexity in the system, and may result in manual intervention on an automated payroll system. This sort of complexity can inhibit business behaviour in how they choose to reward or incentivise their staff. For example, businesses may be reluctant to provide benefits in kind. Even something as simple as providing a shopping voucher as an employee reward can cause a disproportionately high knock-on burden.

Businesses sometimes experience difficulties in their dealings with HMRC. Many businesses commented on duplication of information being provided to HMRC, particularly in the context of year end returns for PAYE/NICs. Others had experienced practical difficulties accessing the online facilities. There were also many comments on the guidance produced by HMRC which businesses find difficult to understand. Where businesses had good experiences with HMRC, this was often because they had good working relationships with their local tax office and were able to resolve queries and issues as they arose.

Many businesses resent being treated as an "unpaid tax collector" and then made to feel that they are "automatically … in the wrong" if there is an error.

Other businesses are concerned that a penalty system that applies as a percentage of total PAYE/NICs due does not recognise the efforts that they make to comply and the difficulties that they experience in doing so because of the complexity in the rules.

Although many of the points raised by business do not feature on any 'top ten' list, they add disproportionately to the sense of complexity in this tax area. Therefore, although the top burden is the routine PAYE/NIC year end returns, the feedback from business, in particular the areas outlined above, should be considered carefully when looking at priorities going forward.

...back to 17 August 2006


Source:
Progress towards a new relationship: how HMRC is working to make life easier for business
The Administrative Burdens
Part 11 - Employer Taxes

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