Payroll expert Karen Thomson tells us about disputes with HMRC, the conveyor-belt of tax consultations and why accountants should charge more for payroll services.
Karen Thomson has her summer reading sorted. But they’re not the kind of publications you’d read on the beach. At the time of interview the government had recently published about half a dozen consultation papers on planned changes to payroll services (including rules to prevent people trying to avoid tax by using “disguised remuneration” schemes) or things that that will affect payroll.
“Constant change,” says Thomson when asked about the main trends in payroll.
One recent law (in April) was “voluntary payrolling”. It allows employers to use their payroll to deduct Pay As You Earn (PAYE) tax for “benefits in kind”, including company cars and medical insurance, which are paid to employees. Employers that do this won’t have to fill in an annual P11D form summarising benefits in kind to employees.
The idea is to simplify the tax system. Overall, though, payroll has been getting more complicated in the last five years or so, Thomson says.
In 2013, the government introduced “real time” PAYE. Employers now report payroll deductions in “real time” when they pay employers, rather than once a year as they did previously.
The technology is working fairly smoothly. The main problem for accountants and payroll departments is what happens after the figures are sent to HM Revenue and Customs (HMRC).
“There are still problems, not with RTI as such but more with the reconciliation of payments,” says Thomson, a quick talker who has worked in payroll since the late 1990s.
For example, HMRC may claim that your client hasn’t paid enough national insurance contributions and send them a penalty notice. Your client says it has. Data from each party doesn’t match. Accountants and payroll providers argue on behalf of the client. Disputes can drag on for as long as six months.
“We’ve had comments from HMRC saying that we’ve got a backlog and it will take around three months for us to sort this one,” Thomson says. “That’s just not good enough. And I’m very much a supporter of HMRC. I appreciate the job they got and the size of organisation. But in the private sector if we turned around to a client and said I’ll fix that but it’ll be about three months – can you imagine?!”
When clients get a penalty notice from HMRC they’re understandably worried and expect their client to fix things. The accounting firm’s reputation is at stake but Thomson says many accounting firms undervalue payroll. Many firms even run payroll services as a loss leader, Thomson says. This may be in the hope that they can use it as a way to win other business with the client.
“There is a huge value to payroll. But where they say we’ll do it for free it implies that there’s nothing to it. If the client decides I can do it for themselves and get it wrong the penalties are huge.”
Changes to pension law also affect payroll. And create opportunities for accountants to advise clients on payroll.
Rules on auto enrolment, − which will require all UK employers who employ one of more worker to offer their workers a pension − will affect payroll. Accountants can advise businesses on this and also on “salary sacrifice” schemes.
People and numbers
Early in her career Thomson worked at a housing association in the north of England where she processed payroll, HR and other information.
She then worked in local government (HR and payroll) and in accounts in the private sector. Then she worked in payroll for Cumbria police. One attraction of the job was that involved “people and numbers”.
Thomson did a diploma with what was then the Institute of British Payroll Managers, which later became the CIPP. Thomson was payroll manager at Carlisle council before moving to the CIPP in 2003, where she rose to associate director of policy, research and strategic visibility.
In 2015, Thomson joined Armstrong Watson, an accounting firm, as director of group payroll services. “It was a huge decision as I had been with the CIPP for 14 years and still do an awful lot of stuff with it. But I’ve made the jump and I think it was one of the best career moves I’ve made.”
What does she enjoy most about working for an accountancy practice?
“The variety [of work] and I have a team of 22. I work with tax colleagues and accountancy colleagues and I work with audit and assurance colleagues. I’m learning about a whole business journey, so it’s not just payroll, although I love payroll.”
Stay up to date
What’s Thomson’s advice for accountant who want to increase their expertise in payroll?
Keep up to date with legislative changes. “Every day there must be four or five pieces of news that go on [the CIPP’s] web site on impending changes to legislation. That’s how I make sure that I keep up to date. If [accountants] aren’t sure how to do something [payroll related] get the training on it, look at the webinars from HMRC, the CIPP or the AAT. It’s not something they can afford to get wrong.”
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Nick Huber is a freelance journalist and has written for Accounting Technician magazine, The Guardian and BBC.