Epayments

A year has passed since large companies have been compelled to make their PAYE and national insurance payments to the Inland Revenue electronically. Initially, there were a few teething problems as both the Inland Revenue and payroll managers grappled with the new system.

Now, despite the occasional hiccup, the system is running smoothly and the days of making payments by cheque seem both far off and anachronistic.

What changed?

From the first month of the 2004/05 tax year, employers with more than 250 employees on their payroll have had to pay their PAYE tax, National Insurance contributions, Construction Industry Scheme (CIS) and Student Loan (SL) deductions electronically.

The Revenue established a dedicated unit – the Receivables Employer Unit (REU) – to deal with companies affected by this.

Employers can pay by one of five electronic methods: BACS Direct Credit, bank or building society internet or telephone banking, BillPay (debit card over the internet), CHAPS or Paymaster.  Large companies have tended to use either BACS or CHAPS to make their payments. Paymaster, a system of accounts held by the Office of the Paymaster General, is generally used by government departments and local authorities.

BACS payments typically take three bank working days (although some may take longer) to reach the account while CHAPS payments are processed immediately but BACS transfers are generally far cheaper than BACS transfers.

A typical CHAPS transfer might cost £20 while a BACS transfer might cost 45p. Where CHAPS can prove cheaper is in making very large e-payments, where the interest saved in the three working days that it takes to make a BACS transfer can outweigh the additional cost. 

This year, one of the disadvantages of using BACS has been removed. Until the beginning of this tax year, anyone paying by BACS had to make separate payments for PAYE and National Insurance whereas the payments could be combined when using CHAPS. Multiple payments are now possible using BACS too.

The big change as far as most companies are concerned is the payment date. Under the old system, payments had to be in by the 19th of each month. Simon Parsons, head of payroll processing and legislation at Ceridian Centrefile, says: “With the new system, the money has to be in the Inland Revenue’s bank account by the 22nd. Previously, as long as the cheque was there and dated 19th or earlier you were fine.”  If the 22nd is on a weekend, the money has to be credited on the last working day before the 22nd. As a result, some companies who used the old cheque system to their advantage will now be caught out. “If you were banking with, say, the Bank or Barbados, it might have taken three weeks for the cheque to clear,” says Parsons. Companies missing the 22nd deadline are issue with default notices. If a company receives more than two default notices in any one tax year, payments will start to attract surcharges. These start at 0.17 per cent of the outstanding amount and rapidly increase with increasing numbers of defaults.

In practice

Kate Upcraft, policy and research manager at the Institute of Payroll and Pensions Management (IPPM), says the Revenue was a little surprised at the uptake of e-payment. “Although there are only around 11,000 large employers, many more decided to make e-payments. The volumes were very significant,” she says.  She said there were a significant number of small employers who have decided to make payments electronically, even though they are not required to. “Not all small companies are Luddites,” she says.
The numbers were also boosted by large employers who were running small payrolls in addition to their payrolls with more than 250 payees. The IPPM has been represented on the Inland Revenue’s project board for the e-payment project. Upcraft says that being involved in this way has enabled them to alert the Revenue quickly about any issues that have arisen. And issues there have been. Several companies came unstuck in August, the first month on which the 22nd fell at the weekend since mandatory payments had come in. Some companies failed to get their payments in by the last working day before that. “They were automatically in default and rightly so,” says Upcraft. “We have been trying to highlight this year when that happens because it isn’t considered a reasonable excuse.” An Inland Revenue spokesman says: “The REU contacted every employer who defaulted to explain what the position would be regarding surcharge if default continued. The REU will always attempt to contact the finance director of a business identified as potentially liable for surcharge where they have defaulted on two or more occasions. On contact, the REU will provide an estimate of the likely surcharge in each case.”

What now?

With the beginning of the new tax year, Upcraft says there are only a handful of new e-payers compared to last year and she doesn’t expect many problems. “The only blip this year for some unexplained reason is that the Revenue has issued a large number of paying-in books.” Should smaller companies be concerned that e-payments are just around the corner for them?  Ceridian Centrefile’s Simon Parsons, whose e-payment clients are typically foreign companies with small UK Offices, believes there are barriers to the requirement being extended to smaller employers. “There is a major implication for the small employer who is to doing everything on paper. If you are a small employer, do you have an email address and does this mean you are going to have to go out and buy a PC?”  The IPPM’s Kate Upcraft says the Revenue is very categorical in denying that the system will be extended to smaller firms. “It’s not a top priority at the moment. Because the take-up [among larger firms] was so considerable they have achieved their objectives in spades.“  The Revenue says: “Small and medium employers can still choose to pay by cheque but we have evidence that they are attracted by the improved security surrounding electronic payment.”

Case study

Clifford Chance is the world’s largest law firm, with 7,500 employees in 28 offices in 19 countries and has its headquarters in London’s Canary Wharf.  Payroll manager Tracey Smith runs three payrolls for the company. The main Clifford Chance UK payroll includes 2,800 payees and the other two have less than 50 each.  Smith moved to e-payment around three years ago, before last year’s deadline for mandatory e-payment by large companies. “I made the decision to do it and someone from the Revenue faxed me through a ream of information on how to do it. They were very helpful,” says Smith. 

Payments are made by the cashier’s department using BACS but not everything has gone totally smoothly.  “Early on, the reference numbers we were quoting were not being picked up by the Revenue and on two occasions we received default notices. Twice I had to ring up before they eventually found the payments.”  Smith is concerned that despite making the payments correctly, the defaults are still on file. “ I asked them to provide written confirmation that we did pay but they haven’t done. That’s a bit worrying.”  But these proved to be just teething problems,” Since then, everything has run smoothly,” says Tracey.  Would she recommend it smaller companies who do not yet have to make mandatory e-payments? “Certainly. You are going to eventually have to do it anyway and even if the Revenue say the payment has gone awry, you can still prove it has been sent.”
 

FINANCE ARTICLES