Small businesses to be ensnared in red tape as tax changes come into effect

Today a new era for employment taxation will begin.  Employers will have to report PAYE (pay as you earn) information in real time, but many businesses have admitted to being unprepared. 

Marking one of the biggest employment tax shake-ups in 70 years, the new taxing system comes in today, despite the prime minister’s promises to “cut back on excessive rules” to help “unleash our small businesses”.

According to the Chartered Institute of Taxation, many small businesses were thinking of closing down as a direct result of the PAYE system. Indeed for many, today’s changes are the last straw in a long line of bureaucracy. 

To some extent this new system compels businesses to incur more costs.  This has been the case with Chris Mugford, managing director of The Web TV Company, which produces online videos who has had to employ a bookkeeper for a company of only two people because of the changes. 

Trying to ease the changes in slowly, HMRC told companies that should they fail to comply with the new system they will not face fines for late reporting for another year, but could incur penalties for inaccurate data. 

Tina Riches, an expert at the Chartered Institute of Taxation, like many other taxation experts, shares a feeling that an incredible number of employers might not know about the new Real Time Information (RTI) system that starts today. 

She said: “It could be a church that employs a cleaner and an organist,” and added “anybody that employs somebody under PAYE in their own home, such as a gardener, a cleaner or a nanny”.

A spokesman for the HMRC, however, stated that the HMRC believes that approximately 85% of businesses are aware of the RTI changes after an advertising campaign and two letters to all employers. 

Annalisa Ratti