Payroll reform postponed by tax office

After protests from small businesses, HMRC has chosen to postpone its planned overhaul of payroll taxes after concluding that companies are not yet prepared to face the changes.

The changes that were due to take place in April included a move to “real-time information”– That is where employers would have to send HMRC details of wages and tax every time they pay an employee rather than just once a year. Now though, organisations with less than 50 staff will only be required to report monthly. This will continue until October but businesses are expected to petition for the change to be made permanent. The system will be reviewed in the summer

The proposed move by HMRC to real-time information is important to help engage the universal credit reforms which are set to begin in April. Universal Credit will combine all working age benefits into a single payment. Calculating this single payment will rely on using a complex computer system which links HMRC with the Department of Work and Pensions.

Real-time information will be the biggest change in the payroll system since the “pay-as-you-earn” system for income tax was introduced in 1944. Many heads of businesses have stressed their concerns that a lot of small companies are either unaware or unprepared for the upheaval.

HMRC said it recognised that some small employers who pay wages weekly or more frequently, but only process their payroll monthly, may need longer to adapt and, because of this, have given employers with fewer than 50 workers, who find it difficult to report every payment at the time that it happens, the option of reporting once monthly.