From May 2005 managers will be required to file year-end returns online; Annie Hayes talked to Simon Parsons, Chair of the Inland Revenue’s Electronic Exchange Network (IREEN) and head of payroll processing and legislation at Ceridian about the future of payroll, how the new regulations will change the current landscape and why he thinks the Inland Revenue Quality Standard is ‘confusing’.

Payroll managers may well be getting nervous as the summer approaches. May will see 11,000 British companies (the Revenue’s figure from its snapshot of company size taken in October 2004) with more than 250 employees file their year-end returns electronically with the Inland Revenue.

For those who fail to comply a £3000 fine could be theirs.

The Revenue will also require smaller companies to file online in time:

• 50-249 employees will be obliged to e-file the following year, 2005-2006




• Small businesses with fewer than 50 staff have a little longer – 2009-2010

I asked Simon Parsons what the new regulations mean to the payroll arena:

“The impact has not been felt yet. Although the Inland Revenue will claim that the numbers e-filing is high, it is comparatively small.”

In 2004, of the 1.2 million employers, just under 90,000 filed their annual returns online, up from 15,630 in 2003 and 8,666 in 2002.

According to Parsons, 70% of the companies which must now e-file have never filed electronically before.

Employers can file online in two ways: via the Internet, from software or Inland Revenue forms or for larger employers by Electronic Data Interchange (EDI).

“Many of the suppliers are still dragging their feet. The Electronic data interchange (EDI) upgrade software hasn’t given users the physical link they need, many do not realise they also require hardware in place too,” says Parsons.

It’s not just a capability issue; communication seems to be a problem. Parsons tells me that the mid-sized businesses are suffering from a lack of know-how:

“Software such as Sage has for a long time offered the capability to e-file but only a small number of its users have so far done it.”

As an early adopter of e-filing; Ceridian have been returning electronically since May 2000, I wondered what issues they had come across.

“Generally it’s been straightforward. If you’ve two million P14s to file it takes time no matter what technology you have. In 2000 it took us thirty days elapsed time to file two million records and now we’ve got that down to just five days.

“We did initially have problems with the BT ISDN lines, they kept breaking mid transmission. Thankfully BT have now rectified the issue,” explains Parsons.

Another glitch in the system also hampered activities:

“The Revenue used to only accept data once; this meant we had to hold the returns right up to the ‘wire’ so that last minute changes could be made by payroll managers and then send everything together.”

The Inland Revenue claim to be making life easier for software buyers, however. They have accredited over 40 suppliers as meeting the requirements of the Payroll Standard.

Speaking to payroll staff at the Softworld event in Birmingham’s NEC last October, Inland Revenue business adviser Marie Gibbs urged employers to ensure software can deliver.

But says Parsons the payroll standards are ‘confusing’.

“The payroll standard has been written to help SMEs choose desktop software. None of the major players, however, can comply with it. To meet the terms for example, a local government payroll must be able to calculate Directors National Insurance Contributions even though it doesn’t apply. It also insists that the product or service files P14s and P35s, but service companies don’t file P35s as they won’t have all the information – this means that big players don’t presently get on the list although their products are amongst the best available to meet industry needs.”

It is clear that Parsons feels strongly about this issue, he goes onto say that while the Revenue promote their standards as ‘quality’ in his opinion it doesn’t test employer needs or anything outside the IR interest.

“The Revenue think payroll is purely about tax and national insurance but that is only a small part of it.”

What then should businesses look for when selecting a supplier?

“They must consider the background of the supplier, how long they’ve been in the industry and their own business requirements,” says Parsons.

Like many the ‘confusion’ is just getting worse and more and more are now opting for outsourcing a move which Parsons supports:

“Payroll is very complex. An employer can’t be expected to keep up-to-date with the frequency and complexity of legislation; it’s hard enough for suppliers so yes in my opinion I would say that this further red-tape improves the arguments for outsourcing, give the problem to someone else.”

But are the suppliers keeping up? I asked Parsons how software providers can keep abreast of changes in technology:

“It is difficult especially with payroll. The technology used within businesses isn’t necessarily core or updated. For instance you could have one business where the technology is top of the range while in the next it is bottom – there are wide-margins of technology out there.

It does cause problems for suppliers who then have to implement the systems.”

In recent years there have been key advances in payroll software, access to data, payroll portals, ASP platforms and self-service features amongst others, picking the right system can be a minefield but what is clear is that the clock is ticking, a fact that the Inland Revenue is only too happy to remind us of.

Getting down to the basics, Gibbs warns bosses that it takes seven days to receive a pin once Revenue registered, with a window of 28 days to activate it. Failure to do so means you have to start the whole process again, leaving it right until the deadline could therefore mean failing to file on time and failure means financial penalties. Outsourcing just keeps looking better and better.