Ever since PAYE was fully introduced in 1944 employers have been HMRC’s unpaid tax collectors. This responsibility has been to calculate the tax due on employees’ wages, complete end of year returns, and pay over to HMRC each month the tax collected from employees.
By and large employers have grudgingly accepted this administrative burden as simply part of the cost of doing business in the UK. However, that burden is often put to the test when HMRC demands are too great or when things go wrong and HMRC expects employers to pick up the bill.
The introduction of the Scottish rate of income tax (SRIT) will further test the patience of employers as they face this and other administrative burdens in the coming months. And contrary to popular belief it won’t just be Scottish employers that are affected. The changes will affect all UK employers with Scottish resident employees whether they are in John O’Groats or Land’s End.
From 6 April 2016 any employee who is resident in Scotland may be liable to pay a different rate of income tax from work colleagues who live elsewhere in the UK. The Scottish Parliament is due to announce the SRIT after George Osborne has released his Autumn statement on 25 November. The SRIT will be the biggest change in PAYE since 1944 as employers will now have to adapt systems to accommodate new code numbers and different calculations depending upon where employees live.
Amending payroll software is never an easy or inexpensive task. SRIT requires very significant alterations to the software to include two sets of calculations (one for SRIT taxpayers and one for everyone else), perhaps new payslips, and even to things like employee pension contributions. Bringing all of this together by 6 April next year might be a real challenge for employers already having to cope with, amongst other things, auto-enrolment, the living wage, payrolling of benefits and the abolition of dispensations. Could SRIT be a (Forth Road) bridge too far?