PAYE changes will overburden business

 The Government is set to cause unnecessary upheaval for businesses of all sizes when they shake up the way employers comply with the Government Pay-As-You-Earn (PAYE) scheme, according to the North East’s leading business group.

 The North East Chamber of Commerce (NECC) has written to HM Revenue & Customs (HMRC) calling for a re-think to plans to introduce ‘real time’ collection of PAYE payments. The move is backed by the North East branch of the Federation of Small Businesses (FSB) which is concerned about the impact it will have on thousands of the smaller firms in the region.

The Government is introducing changes in PAYE from Spring 2012 because it claims the move will bring benefits of £360m a year. But, business leaders in the North East have questioned the calculations and believe that instead of being a benefit, it will dent companies’ cashflow at a time when they can ill afford it.

 NECC has also voiced fears that the PAYE changes appear to be entirely designed to support the Government’s new universal credit welfare system – a burden which should not be laid at the door of businesses. 

 The letter from North East Chamber of Commerce (NECC) set out the problems the new system will create and recommended several changes that will help the Government achieve its aims without piling further headaches on the business community at a time when they need to be focused on growing the economy.

 Ross Smith, NECC head of policy, said: “The fundamental role of businesses is to create the wealth, jobs and investment required for a healthy economy – not to solve the problems of implementing the tax and welfare policies of the Government. We fear these changes will heap undue burdens on businesses and will harm their ability to manage cashflow.”

 The changes also risk creating a black market for low cost, occasional labour. The Government plans to make all firms pay staff via the BACS system (Bankers’ Automated Clearing Services) – a scheme that enables electronic processing of financial transactions.

 While BACS is a recognised and well-used system for many companies, there are a sizeable number of firms that use more traditional methods to pay staff. NECC has raised concern that forcing payments through the banking system will tempt some employers to pay low wage, casual workers ‘black market’ cash payments instead. The net result would deny the Treasury revenue.

 NECC has called on a more measured approach to collecting PAYE, allowing employers to provide information one month in arrears to ensure greater accuracy. It has also recommended the Government scrap plans to force all payments through the BACS system.

 NECC also wants assurances that HMRC will fully abandon plans to moves to a system of centralised deductions or centralised payments, which could have a damaging impact on the relationship between employers and employees.

 Businesses are keen to see a longer timetable for implementing the proposed PAYE changes and clarity around what fines are likely to be imposed for companies that fail to comply with the new system.

 Simon Hanson, head of policy at FSB North East, said: “If the Government is serious about a private sector led recovery it must re-consider the PAYE proposals. Imposing extra burdens on small businesses is the wrong approach to help achieve economic growth. Instead the focus of HMRC and the Government should be on supporting more small businesses to take on more staff to help the North East economy grow.”

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