RTI (Real Time Information) Threat to Small Business?

RTI threatens to bring stormy seas for small businesses

While larger employers may feel prepared for Real Time Information, the reform could create significant challenges for smaller firms, explains Mike Cherry

Larger firms, with in-house payroll staffed by a team of people, will be affected by PAYE reform. But the reform will have a great deal more impact on the smallest firms.

Only four in 10 small firms outsource their payroll, with 57% completing payroll in house, either manually, using basic HMRC PAYE tools, or using a dedicated payroll software package. For large businesses this is fairly straightforward,but most small businesses don’t have a dedicated accounts department. The small business owner will have to manage all this while chasing late payments, trying to win new business, and running marketing campaigns.

At the Federation of Small Businesses we polled our members back in October 2012 – six months before RTI was due to start. We were shocked to find that 25% of members hadn’t heard of RTI, let alone started to prepare for it. Even more disturbing was the fact that fewer than a third of those polled had received any communication from HMRC about it.

HMRC has since stepped up its communications, but there are still many challenges to overcome. For a start, those businesses that don’t use dedicated payroll software are going to have to buy it. We spoke to one small business owner who only employs a book-keeper for one day a week. He can’t afford to pay her to come in more often, and RTI is going to considerably add to her workload.

A third of members that responded to our survey expressed concern about learning new processes and software. One of the things we have told HMRC is that it must educate small firms about what they have to do to comply. And with 24% of our members saying they are worried about the possibility of dealing with HMRC inspections and enquiries, and another 16% concerned about achieving the right level of accuracy in reporting, we think this can’t come soon enough.

Button click

We recently took part in a programme on Radio 4 about RTI implementation. HMRC said in the interview that its pilot scheme had worked well, and that according to the feedback it received, the process is easier than most businesses had expected it to be. In support of this view it cited the experience of a business finance director – which highlights to me that it wasn’t talking about a small business.

The RTI data submission process, which been described as just a “click of a button”, will in fact be so much more than that to the smallest of businesses in terms of time and money, as they will have to report at least 12 times a year – or more if they pay more frequently.

On the other side of the coin, one of our members runs a payroll consultancy and actually took part in the HMRC pilot scheme. She found that it added another two steps into the payroll run as, not only does the client have to review the draft payroll, but they will also, in a separate document, have to view the draft RTI submission before it can be sent. This is far more work than just “one click”.

What we want to see is much more flexibility in the system for small firms. We had called for small businesses to be able to report once a month, and are pleased that until October 2013 some will be able to do this. But it doesn’t go far enough. We want small firms to be able to report once a month, up to two weeks after the tax period. This would limit the amount of time the small firm has to spend on it, but still provide HMRC with the information needed to run the Universal Credit system. If not, we are concerned it will put people off employing, or encourage them only to take on part-time staff. This isn’t the way to boost economic recovery.

Mike Cherry is national policy chairman of the Federation of Small Businesses

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