Nightmare in Payroll

Chaos coming with Full MPPC?

 There has been considerable discussion taking place over the revelation that HMRC issued some 3.5 million Forms P43 each year for the past two years. This information was obtained under a Freedom of Information request and many have considered it to be surprising that so many requests for what is, in effect duplicate information, has been required by HMRC.

The issue of these Forms P43 has a direct cost on Employers, Payroll Bureaux and Accountants across out the country. Each form requires payroll records to be checked, the information extracted and the form completed and posted. There have been estimates which indicate that these costs could be as high as £17.5 million per annum, a significant sum. The figure of £17.5 million is based on the assumption that it would take some 30 minutes to obtain the information, manually complete the form and post it and that the hourly rate involved was £10.00.

HMRC have been operating electronic filing, the quicker cheaper and faster option, during the two years that these Forms P43 have been issued and therefore it is unclear exactly why so many Forms P43 were issued. Naturally there will be situations where an Employer has failed to forward the Form P45(1) to HMRC and there will obviously be times when HMRC have received but mislaid the Form P45(1). We are all human and mistakes will happen.

This however can not be the fundamental cause of the problem, since one would expect HMRC to take action against those Employers who did not send in Forms P45(1) and similarly undertake in house action if so many Forms P45(1) were being lost, neither of which appears to have taken place.

There are unconfirmed rumours that some Employers who are filing all PAYE data electronically, and therefore have absolute proof of the fact that Form P45(1) data has been sent to HMRC, have been advised by their local Tax Office to ignore any Forms P43 which they receive.

Several members of the MPPC Employer Consultation Sub Group were contacted and asked for their thoughts and views on this matter. The response from one member was both surprising and alarming. The member expressed the view that the introduction of compulsory Electronic Filing for every Employer would resolve this issue and went on to stated that one of the reasons that Forms P43 are issued was:

“An employer does not send the information in quickly. If the employee starts a new job and completes the P46 and the new employer sends this in quickly, if HMRC do not have the Part 1 from the previous employer then a P43 will be automatically generated.”

The question was then asked as to how Electronic Filing of the Form P45(1) would change this situation, since it could still be possible for a monthly paid Employee to leave on say 6^th of the month and the Payroll run not take place, and therefore the Form P45(1) not be prepared and transmitted until 28^th of the month. The Employee would still have the opportunity to commence employment on say 9^th of the month, allowing the new Employer to electronically transmit a Form P46 on 10^th of the month. HMRC would therefore still be in the situation where the Employee’ new Employer was requesting a cumulative PAYE Code, but no leaving details were available.

It was the response to this that drew the greatest alarm. The member, presumably on the basis of information gained attending these Consultation meetings, stated:

“HMRC will be implementing a process to ensure that Employers submit P45’s more quickly. These processes are likely to be ‘incentivise’ by Penalties for failures by Employers”

The logic of this proposed MPPC “process”, is that Employers will be required to produce and issue Forms P45 at the time that the Employee leaves, regardless of the frequency of the normal Payroll run. This means that instead of operating a weekly, fortnightly or monthly pay run, Employers will have to operate additional pay runs when ever an Employee leaves.

This could be a nightmare scenario for those Employers with a large turn over of staff, and a real imposition on every other Employer wishing to avoid the “incentivise” Penalties. 

Unfortunately, or should that be yet again, there does not appear to be any reference to this HMRC proposal in any official Minutes of the Employer Consultation Sub Group. The real concern is that such proposals are actually being considered and discussed since they would appear to indicate that HMRC’s understanding of how Payroll operates as an integral part of an organisation, is far removed from reality.

The conclusion from this sad state of affairs is that there needs to be a far more robust challenge to some of the goals that HMRC are setting in their drive to reduce staff numbers through the introduction of automation. There also needs to be more accurate reporting of discussions which take place between those who HMRC deem to represent Employers since this would allow greater scrutiny by all concerned. 

MPPC must not be allowed to serve only the aims of HMRC. Employers, Payroll Bureaux and Accountants are unpaid Tax Collectors with a formidable role. Additional burdens involving basic changes to current Business Operational Practices are to be effectively challenged.