While organisations have a responsibility to submit a P45/P46 for new starters, it’s important to note that the fiasco is not directly to do with anything employers have done wrong. Nor can the new HRMC system be fully blamed – the tax-related issues are historical problems that have been uncovered as a consequence of merging the 12 separate HMRC databases that dealt with Pay As You Earn (PAYE) into a new single national PAYE system.
Tax on employee benefits, such as cars and health club membership, are be reported annually. This tax is payable in arrears and therefore is not reported until July following the end of the tax year. Because of the change of systems the data load was delayed and this has resulted in a backlog of payments to be claimed by the HMRC. Also in many cases individuals are owed a tax rebate.
Being owed money is one thing but actually being in debt to the tax man is quite another and not the nicest of prospects to be faced with, particularly in the current economic climate, when individuals are feeling the pinch. So while organisations are under no obligation to do anything, many employees will see this as a work-related issue and link it to their organisation. It is therefore far better to prepare to be proactive in offering support and helping employees solve or explore tax-related problems because this will reduce the negative impact it could have on work and maintain employer brand. The problems with tax may leave some employees feeling slightly anxious, wondering whether a red letter will land on their doorstep. Therefore organisations should be armed and ready to provide guidance – perhaps offering advice and support via the intranet or an open forum.
It’s always best to direct employees to their local tax office if they have concerns but it might be worth redefining their benefits statement so that they know what they have received and offer information about who might be affected. Examples where they might be due a rebate are if they used to receive taxable benefits but conditions have changed and organisations have reduced some of these benefits. This is probably quite common in the current climate and the HRMC may not have this information and is therefore still taxing them. Equally when employees do not provide a form P45 to their new employer, then tax is taken on an estimated basis. Although in many cases the correct amount may be operated by the employer, it may not equate to the exact amount of tax that should be paid by the individual.
It is only natural that this fiasco will raise questions, from employees and some organisations, in terms of whether the HMRC can be trusted. But before we jump to a conclusion it is important to point out that the HRMC is not doing anything wrong in the same way employers are often not at fault. The HMRC is simply applying law fashioned for an old-fashioned paper communication world. This does, however, beg the question: is the legal framework helping or hindering?
While it has identified mass problems, it is better they are identified now and rectified rather than stay hidden for years to come and in fact the new PAYE system is a step in the right direction. Managing the tax system is no easy task. There have been lots of changes in the workplace that have placed added pressure on employers and the HRMC – with people moving from job to job much more than ever before but also because of the range of packages offered now. It’s not simply pay; there are a whole range of different benefits and packages offered that are changing all the time and that complicate the tax system.
What Ceridian would like to see moving forward are a few simple changes that should help avoid some of these problems in the future, such as the ability to accept supporting evidence electronically when employers and individuals submit their tax information. This used to happen in the paper world but now we have moved to an electronic exchange this additional miscellaneous information is no longer valid which makes accuracy very difficult and could cause further headaches for individuals and organisations. What we need is more interaction and flexibility in terms of the exchange of information – only then can we be sure information is accurate and the HRMC will be successful in reducing errors and additional work for employers and employees alike.
Simon Parsons is director of payments, benefits and compliance strategies, Ceridian
