HMRC launches scheme to support micro-businesses with PAYE

Tuesday 10 December 2013

HM Revenue and Customs (HMRC) is working to move more businesses over to real time Pay as You Earn (PAYE), launching a new package of support for micro-companies with nine or fewer employees.

While more than 99 per cent of PAYE records are now reported in real time, small companies and contractors often find it challenging to work the system.

HMRC has now developed resources in conjunction with employers, agents, payroll software representatives and the Department for Work and Pensions that will help micro-employers make the switch.

Ruth Owen, HMRC’s director general for personal tax, said: "The vast majority of employers are now successfully reporting PAYE in real time and are finding it easier to do this than they expected. But we appreciate that for some micro employers it has presented challenges for them to meet the deadlines."

To tackle the problem, the government will produce improved guidance, including best practice scenarios, and work with the software industry to harness technology that will create new ways to report PAYE information, such as mobile apps.

To give smaller businesses more time to adapt to reporting PAYE information in real time, HMRC will also allow micro-companies to submit PAYE on or before the last payday in the month until April 2016.

This is more flexible than the current system, which demands PAYE is reported every payday.

"This package strikes a good balance by ensuring RTI improves PAYE processes while minimising the impact on micro businesses and their agents by giving them up to two years to adapt," Ms Owen said.

Employers that already report PAYE information on or before the date they pay employees should continue to do so.

To simplify matters further, contractors can also join a PAYE umbrella, which enables them to become an employee of the company.

Once joined, a contractor will instruct their umbrella company each week or month to invoice the agency or client based on their timesheet.

Umbrella companies then pay a net salary, complete PAYE forms,  and deduct national insurance and income tax.

For those that continue to operate independently or as a sole trader, however, it's important to comply with PAYE changes as soon as possible, as the government ramps up the switch-over.

However, at the start of 2013 just 26 per cent of sole traders had taken steps to get ready for the move to real time reporting of PAYE, according to research from business software provider Intuit.

Despite the fact six in ten employers where aware of the changes to the system that came into effect in April, just under a third were in a position to deal with them. This number was likely to be higher among smaller businesses.

At the time, 35 per cent of employers said they were yet to take action because they felt they were without adequate information on how to prepare.

However, with HMRC launching its new support package, smaller businesses should have access to all of the help they need when complying with changes and readying PAYE systems for the 2016 deadline.

By Victoria McDonnell

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