Taxing times

If your organisation has more than 250 employees, then you need to be ready to filetax returns electronically. 

Certain dates are indelibly printed in our minds, and if you are a payroll manager in an organisation employing more than 250 people, then 19 May 2005 should have a familiar ring to it. This is the date by which all year-end returns must be filed electronically to the Inland Revenue (IR). Pressure has been on payroll departments to go digital ever since Patrick Carter proposed the introduction of mandatory online filing as part of his payroll services review, published in November 2001.

Under the umbrella term of PAYE Online, employers have two main routes they can take to submit their end-of-year returns (P35 and P14 forms): filing via the internet, or filing via Electronic Data Interchange (EDI). For smaller companies, there is also a third option: the Online Return and Forms Service.

Until recently, EDI was seen as the only viable option for larger organisations because the internet alternative couldn’t cope with a high-volume of returns. The situation has changed, however, with the IR intending to replace the previous Filing by Internet (FBI) with a ‘supercharged’ internet service for employers. This will allow organisations to send up to 150,000 records over the internet by next year, which should prove adequate for the majority of UK employers.

“The IR has thrown a lot of weight behind developing an internet channel that nearly every employer can use,” says Kate Upcraft, policy research manager at payroll body the Institute of Payroll and Pensions Management (IPPM). “Size is not really an issue anymore in terms of choice of channel,” she adds. “Now, the choice is really down to your business – does it use EDI, is it prepared to make an EDI investment, or is being internet-enabled a preferred option?”

Although key payroll and software system suppliers have refused to go down the EDI route, it still represents the bulk of electronic delivery to the IR, and industry observers are doubtful that the anticipated big shift to the internet option will actually take place.

EDI is a dedicated and private link between the IR and the organisation, which means it is fast and secure. Connection speeds will always be an issue for internet users – simply because a high-speed broadband link is being used, it doesn’t mean data is always downloading that fast, and no matter how solid the claims by the IR that the internet is secure, there are those who will remain sceptical.

“The IR will always claim the internet is very secure and private, but you can’t get more secure and private than a direct telephone to the IR itself,” says Simon Parsons, chairman of the Inland Revenue Electronic Exchange Network (IREEN), a user group formed with the aim of sharing ideas and experiences linked to electronic exchange services for PAYE.

Software for the internet is another sticking point. “It is easier to do electronic interchange through EDI than through the internet,” says Parsons, a legislation and payroll strategy manager at Ceridian Centrefile – a payroll bureau and managed service provider that uses EDI to file returns on behalf of 7,000 employers.

He maintains that because the internet is a “replication of a paper world”, it is eminently suitable for forms such as the P35, but as P14s involve massive amounts of data that need to be delivered quickly and effectively in a short period of time, this can only be done with specialised integration software. “Unless you have the software to download and upload the files through the revenue site, then it is a question of logging in and copying things manually,” Parsons explains.

Concern has also been expressed over whether the IR’s IT systems will stand up to the volume of transactions that will take place between 6 April and 19 May 2005, and whether sufficient resources have been allocated to internet support. As Neil Tonks, payroll and legislation adviser at MidlandHR & Payroll Solutions, points out: “It is untested, and the problem is the IR has no way of testing it until it happens for real.”

At present, support for EDI users means that each employer is assigned an account manager at the IR to deal with any queries and tackle problems. But the internet route is an anonymous, self-service set-up where employers register online and call a general helpline if they have difficulties.

This level of support was adequate for smaller firms, but IPPM’s Upcraft doubts it will meet larger employers’ demands, not least because take-up can’t be accurately predicted yet. “It’s something the IR must address if the larger employers are to use the internet,” she says. “If you are the likes of Asda or Tesco and you chose the internet, you are more likely to need hand holding as more can go wrong with the volumes transacted with the IR.”

Standard Life’s success at e-filing

One company that has reaped significant benefits by using EDI is Edinburgh-based Standard Life, who introduced electronic filing two-and-a-half years ago. Buoyed by the success of using it to process P45s and P6s, as well as receiving P9 tax code changes for some 8,000 staff, it now plans to extend it to P35s and P14s.

“Our next step is that we are looking at doing our year-end using EDI as well, and we’d like to try to do that a year ahead of schedule,” says Julie Wilson, payroll manager at the assurance company.

The time savings realised on manual resources to date are appreciable – it now takes approximately six days to input all the tax updates compared with the previous time of two weeks.

“We’re still very positive about the improvements that we have made with EDI,” explains Wilson. “The fact that you don’t have that manual intervention means that you are cutting out any sort of error and makes things much more efficient for our staff.”

The company has no plans to upgrade its existing Unipay system from RebusHR in preparation for the next stage.

In terms of the support provided by the Inland Revenue, Wilson says that was straightforward. Initially, the IR came in and met with the team to discuss procedures. This was followed up by a telephone call when the system was first implemented. “It was very useful from our point of view to have that contact with them,” says Wilson.

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