According to HM Revenue & Customs, the gap between what the government expects to collect in terms of tax and what it actually collects was at its smallest in the last recorded financial year of 2014-15. HMRC said that it collects 93.5% of the theoretical maximum tax owed, 0.4% up on the previous year. And at the heart of the changing face of the tax gap is the UK’s payroll reforms.
Payroll changes
In 2013, a new system was introduced where employers were obliged to provide real-time information to HMRC that meant reporting employee pay on, or before, every payday. This replaced a system where they would only have to report this pay once, at the end of the financial year. The change was the biggest since the Pay As You Earn or PAYE system was introduced some 60 years ago.
The changes meant that the number of small and medium-sized businesses that failed to operate a correct PAYE scheme fell from 41% in 2005-06 to 24% in 2014-15. The corresponding gap between expected and paid taxes, therefore, fell from £4bn to £2.8bn. Further measures in VAT reporting online meant that the gap between expected and paid VAT reached the lowest point ever, at just 10.3%.
Robust system
HMRC reported that in the 2014-15 tax year they collected around £518 billion, an increase of some £12 billion on the previous year – partly due to a growing economy and partly down to clamping down on tax evasion.
In fact, the government has invested nearly £2 billion to tackle problems such as tax evasion, avoidance and non-compliance since 2010. Included in this action are steps such as increasing resourcing on compliance for businesses, as well as tackling illicit trades in tobacco and alcohol by organised crime gangs.
Managing payroll
The payroll reforms have been a big change for many businesses but new systems and the ability to outsource payroll where needed has eased this for small and medium businesses. While larger companies are able to have in-house payroll systems and staff to manage the frequent reporting, smaller companies can now use outsourcing systems in order to ensure their compliance without the need to hire extra staff. It also avoids the need for capital expenses such as computer systems, stationary or hardware.
The frequent reports also mean businesses are better able to see their financial position at all times and ensure all tax and national insurance payments are processed correctly. It ensures that payments are made regularly and makes sure the end of the year is less stressful and involves less work.
Cintra Payroll has over 40 years of experience in providing quality outsourced payroll services.