Pay and Benefits

HM Revenue & Customs’ (HMRC) latest consultation concerns the idea of connected employers operating Pay As You Earn (PAYE) under a single reference, rather than one for each separate employer. PAYE pooling was first raised in the 2009 pre-Budget report, but was put on the back burner while Real-Time Information was developed.

 

PAYE pooling, at first sight, is similar to a Group VAT Registration, but unlike this arrangement, it does not appear to have any real benefits, such as transactions between group members being outside the scope of VAT.

 

PAYE pooling would allow organisations, be they large corporate groups, professional partnerships, charities or public bodies, that operate multiple PAYE schemes to consolidate all of them under one reference. The consolidated group scheme then need only submit returns and make payments under one reference, thus reducing the administrative burden of multiple returns and payments.

 

The group of organisations would nominate one of the employers as the representative who would need to submit an application to HMRC to form a pool. If accepted, the tax records of all the employees would move to the new tax reference. The representative employer would be responsible for submitting the consolidated returns and payments. HMRC would then suspend the old PAYE references. The document also discusses employers being able to leave the pool and go back to an individual reference.

 

HMRC will need to be satisfied that the individual employer’s compliance history is good before allowing them to join a group. The discussion document indicates, however, that this would be an optional scheme.

 

In the consultation discussion HMRC has asked for input in determining a definition for “Connected Employers”, but indicates that this would involve some “commonality in business and ownership”.

 

Having one employer record, rather than many to review, brings economies of scale for HMRC. Simply issuing less paperwork must be a cost save in it itself. However, HMRC tends to target, for good reason, larger employers for reviews. There must be a risk that being in a PAYE pool will result in more attention from HMRC.

 

Is the PAYE pool a helpful move? I have to ask the question “what risks are attached to this for my clients and would I advise forming a PAYE pool?” Let us remind ourselves that in this scenario we have connected, but separate, employers. From an employment law perspective the employees belong to the different members of the pool. They may all have different terms and conditions, be on different cycles for pay reviews, bonus payments, and so on. They may be in different industries.

 

Purely from an administrative point of view, it is all very well consolidating figures for returns to HMRC, but in reality the employers are going to be maintaining discrete and separate entity figures internally. The payroll costs must be split accurately between employers for costing and accounts purposes. Therefore, it seems to me that the consolidation for PAYE purposes is really quite artificial, possibly leading to more work rather than less. I also fear that, as with all extra layers to processes, this may result in more errors being made; I cannot see how fewer could be the result.

 

The PAYE pool will be jointly and severally liable for the debts of the pool. Where one employer suffers a cash flow difficulty the other members will be liable for unpaid PAYE. This risk may not be acceptable to many and should be considered carefully; I suspect that this will deter many from forming a pool.

 

Another area which may cause problems is simply the way in which organisations operate. The tax treatment of termination payments, for example, can depend on whether an employer routinely offers payment in lieu of notice (PILON). Suppose one company in a group did make PILON payments routinely so they were taxable, but the other did not. Will HMRC adopt an approach of compartmentalising each pool member? I suspect not.

 

PAYE late payment penalties are the obvious thorn for pooling. The quantum of the penalty is based on the tax paid late, so if a pool accidentally paid late twice the penalty would be based on the whole pool’s late payment rather than just one member’s total PAYE payment. Ouch.

 

A peripheral issue is the matter of confidentiality and compliance with the Data Protection Act. Employers will need to think carefully about the implications of who will be able to access the data of their employees.

 

Lorraine Owens is Employment Tax Manager at haysmacintyre