COMPLIANCE
Behind the payroll curtain
Mathew Akrigg ACIPP, policy and research officer at the CIPP, delves into the hidden world of payroll that not everybody sees
T he theme of this issue of Professional focuses on the you have is often forgotten – what would happen if the job wasn’t done correctly and how many important things are affected that others can’t necessarily see? Tax One of the core tasks of payroll departments is to pay workers accurately and in a timely manner, and part of this is ensuring the correct amount of tax is paid. Anyone who’s used the manual tax tables knows there’s a prescribed way to do this to ensure it’s fair for all workers. But what happens with the information handed to Her Majesty’s Revenue and Customs (HMRC)? unsung heroes – you, the payroll professionals. But the impact HMRC uses it to anticipate what funds to expect from employers for a start, but the data that comes alongside that is vast. A considerable amount of time is spent recovering unpaid amounts due to HMRC that are essential to fund the tax plans of the country. Each worker has a personal tax account, which they can now access online, and this needs to be updated in a timely and accurate way. HMRC uses this data, along with information on earnings from other employments, P11Ds and other allowances, such as the marriage allowance, to determine tax codes. Tax codes are the underpinning of the UK income tax system. Without them, the complex system simply wouldn’t function in an efficient manner. National Insurance (NI) Another deduction we make that can’t be understated is NI. This deduction funds the state pension, and this year at least, health and social care. Again, HMRC aggregates the NI information from all employers and
records the funds on individuals’ tax accounts.
All of that saved for the future, made possible by you. Other processes
Wrong moves with NI contributions can have a significant impact on an individual’s entitlement at retirement. Mistakes may not be spotted right away, and with retirementbeing the main trigger for individuals assessing their NI record, it may be years before errors are spotted. With current recipients of state pension funded by the active workforce, it’s essential you facilitate the correct payment of NI. With an ageing population and fertility rates at the lowest since records began in 1938, the state pension and NI processes are going to be stress-tested to their limits in the future. Workplace pensions The state pension isn’t the only form of pension payroll departments need to understand. Since 2012, employers have needed to automatically enrol their workforce, where applicable. There’s much to be aware of here, with legislation and requirements to adhere to, and almost constant change. As with NI, the impacts of the correct administration of pensions may not be seen for decades. The consequences of errors can be costly to pensions, losing out on compounding interest benefits over the years. A small mistake can grow to large changes in pensions pay-outs. As such, The Pensions Regulator has wide-reaching powers to correct and disincentivise pension processing mishaps. As this isn’t directly controlled by HMRC, it makes the declarations of compliance essential to the smooth, seamless operation of pensions administration. The Department for Work and Pensions estimates over £100 billion in pension contributions were processed in 2020.
And that isn’t the end of it. Let’s not forget some of the other processes that have a huge impact on well-being:
● union dues – currently a hot topic, with many industries seeking strike action to secure pay rises in line with high (and rising) inflation rates ● statutory sick pay – ensuring individuals receive pay when sick ● statutory child-related absence payments – the workforce needs supporting at critical times in their lives, and these payments are essential for their well-being ● holiday pay – legislation, which becomes more complex with each new piece of case law ● benefits and expenses – P11D forms don’t complete themselves. All these things need to be completed with the appropriate care and legislative knowledge to do them correctly. Understanding these changes can be a full- time job itself. This isn’t an exhaustive list, and the involvement payroll departments have in the functioning of the country’s finances can’t be understated. You do so many complex things. It’s unlikely workers will give thanks that their NI or pension has all been processed and paid to the relevant place correctly, so it’s important these things are highlighted. Payroll has value well beyond ‘just’ paying people. There’s no big red payroll button. There are hurdles and an entire obstacle course of legislation and rules to get through before anyone gets paid. If payroll professionals feel like unsung heroes, maybe we need to sing our own praises. n
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| Professional in Payroll, Pensions and Reward |
Issue 83 | September 2022
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