Possible impacts to your payroll budget in 2015

There are many costs that can be budgeted for, penalties however, for non-compliance with HMRC PAYE requirements, should not become a regular budget heading for us. Setting aside the direct cost, the indirect overhead of staff time in dealing with the fall out of penalties, for example reporting on the reasons, or even worse appealing the reason and then having to report on those appeals, is not how we would want to spend our time or the time of our employees.

RTI – Automated Penalties
No article involving the subject of payroll would be complete without some mention of Real Time Information (RTI) which became mandatory for the employer population during the 2013-14 tax year. With the introduction of RTI came the assurance that, following a period of transition, automated penalties would be introduced from 6 April 2014, to cover the event of the employer failing to report all payments to employees on or before their contractual pay date.
The automatic penalty regime was then delayed for six months until October 2014, to allow employers, HMRC and all affected stakeholders more time to resolve any teething issues that they might be experiencing as a result of implementing RTI; which was not unreasonable given that the introduction of RTI had been widely quoted as bringing about one of the single biggest changes to PAYE operations since PAYE was introduced in 1944.
Since then we have received a further announcement from HMRC that they will be phasing the implementation of automatic penalties, giving smaller employers with one to 49 employees a little longer to ensure that their processes are up to date and accurate to enable the timely submission of Full Payment Submissions (FPS) and Employer Payment Summaries (EPS).
This group of employers will benefit from a delay in the penalty regime until 6 March 2015, in the event that they report their payroll information late from this time they may become subject to automatic penalties.

In the meantime employers with 50 or more employees will be subject to the new penalty regime for reporting submissions due from 6 October 2014.
An automatic penalty may also be issued where HMRC believes that the employer should have submitted a greater number of FPS, based on previous submission patterns.
The amount of the penalty will be dependent upon the size of the PAYE scheme, increasing in bands of £100 from £100, to £400 per month for employer sizes banded as, 1 to 9, 10 to 49, 50 to 249 and 250 plus.

Automatic Appeal Process
An employer can appeal if they believe that the penalty is not due or that the amount of the penalty is incorrect or where they believe that they had a reasonable excuse for making submissions late.
In preparation for automatic penalties, HMRC agreed with the software industry that payroll software would include a list of late PAYE reporting reasons to be used from April 2014, to enable the employer to highlight where they may not have achieved ‘on or before’ reporting for a single or group of employees, but with good reason, thus avoiding the issue of an automatic penalty.
There is a list of eight reason codes the majority of which are largely self-explanatory except for the imaginatively entitled code G – ‘Reasonable Excuse’. Software will prompt the employer to enter what they consider to be a reasonable excuse for the submission either being or appearing to be late.
Guidance on the subject of what would constitute reasonable can be found at www.gov.uk/running-payroll/fps-after-payday and is based on reasons given and accepted for appealing HMRC penalties over the years.    
The list given isn’t exhaustive, and the reason must have been considered, i.e. the employer shouldn’t simply tick the box simply to avoid an automatic penalty.
HMRC will monitor the use of reason code G and challenge its use where it believes it has been misused. We would advise caution when leaning towards its regular use and would instead suggest that you adapt your established processes to allow for ‘on or before reporting’ – leaving dates being reported outside of the tax period in which they fall appears to be one of the leading cause of a GNS notice being issued – are your processes evolving to be able to account correctly for this occurrence and thus avoid a penalty? 
Reasons or excuses that have been found to be unacceptable in the past include, “I found the HMRC online system too difficult to use” or “I didn’t get a reminder from HMRC.”
However, successful reasons for appeal could include; I no longer have any employees; the filing expectation of HMRC is incorrect; ill health or bereavement caused the delay; fire/flood/natural disaster – and the list goes on.

HMRC continues to stress that it does not want to penalise hard working employers who are trying to get things right.
The first penalty notices can be expected in January 2015 for employers with 50 or more employees and so we wait with interest to see the expanding list of successful penalty reasons, or will it?

Further information