A proposal by HM Revenue & Customs to allow “connected” employers to pool employee PAYE returns may cut costs for some but could also create “bigger targets” for the taxman, an accountancy firm has warned.
Many organisations such as corporate groups of companies, professional partnerships, charities and public bodies, are made up of a number of separate entities. All employer entities within the organisation have their own PAYE reference and are required to make payments and returns to HMRC in order to meet their PAYE obligations.
But this situation can prove to be an “unwelcome administrative burden”, which could be eased by allowing connected organisations to be treated as a single entity for PAYE purposes, HMRC said in a consultation. Under PAYE pooling, three companies within a corporate group could set up a single PAYE reference in the name of their parent company, enabling the three employers to make combined payments and joint returns to HMRC.
But while this pooled payroll arrangement could help to cut employers’ administrative costs, it could also potentially create larger targets for compliance visits by tax officials which, in turn, could yield higher penalties, warned accountancy firm, Baker Tilly.
Martin Benson, partner at the company’s employer consulting group, said: “If HMRC reviews an employer’s records and finds that five employees have claimed reimbursement for their travel between home and work, the larger the payroll in question, the larger will be HMRC’s assumed total for the whole workforce in calculating the arrears of tax, interest and penalties. If several employers are pooled together, HMRC will base their estimate on the total number of employees, instead of just those employed by one of the pool members.”
The pooling proposal is HMRC’s latest plan to reform the PAYE system, which was introduced in 1944 to cope with an increase in the number of taxpayers during World War Two. A discussion paper published last year proposed providing “real time” payroll information and centralised collection of tax and NIC.
