RTI Regime and Payroll Clients –

An update from Sam Talby – Partner at FRP Advisory – Business Network SW members

RTI Regime and Payroll Clients

In any cash flow the two most important business costs to be met by Owner-Managers and SMEs are rent and staff costs.

                                                                      

The vast majority of businesses, be they schedule D traders or limited companies, need to employ staff.  If you are a provider of payroll services you are effectively at the coal face and are able to quickly form an opinion as to whether your client has actual or potential cash scarcity issues.

You will be aware that RTI requires employers to report payroll information on or before making a payment to an employee, as opposed to once at the end of each tax year. The report known as a Full Payment Submission, although now tweaked for smaller businesses (information at HMRC’s websitehttp://www.hmrc.gov.uk/payerti/index.htm), provides more up to date information on whether an employer is paying the correct amount of PAYE & NI at the right time.

In the past some companies facing cash flow and/or other financial pressures pre RTI, benefited from taking involuntary “HMRC credit”.  Only upon submission of the P35 would HMRC be able to see if the correct amount of tax had been paid over.  The advent of RTI obligations should eradicate this situation.

RTI effectively provides HMRC with an early warning system for companies that may be behind on payments. A decade on from losing their preferential status and being “in the queue” with ordinary creditors, the latest RTI obligations provide HMRC with the radar needed to detect late payments of PAYE related taxes. If HMRC fails to recover its debt quickly enough and the client then becomes insolvent, HMRC loses out.

This will put in to sharp focus to you whether a business client has liquidity problems preventing payment of a key business cost.

Client companies with cash flow issues are vulnerable to legitimate HMRC collection tactics such as winding up proceedings and distraint proceedings.  For example, if following initiation of distraint proceedings the debt is not paid within a prescribed period, HMRC are entitled to collect assets subject to the distraint and sell them to satisfy their debt.  This could leave your business client unable to trade.

If a business is suffering from cash flow or other difficulties threatening its survival then protection can be sought by seeking what is called a “Notice of Intention to Appoint an Administrator”, and once filed in Court provides an immediate defensive wall against all creditors.  On filing, a 10 working days moratorium is imposed preventing any creditor-led action being taken against the company or its property unless leave is granted by the Court. This importantly includes HMRC.

During this moratorium the aim of the prospective Administrator is to investigate whether the issues facing the client company are temporary and solvable, or require a rescue procedure including administration. The initial process itself does not necessarily mean that an administration is necessarily the eventual outcome. The key is that during the period of the moratorium the client is still able to trade, with existing management still in place, pending outcome of the inquiry process.

If you supply  payroll services you will have a good understanding of your business client, and importantly be able to recognise inability to pay HMRC.

If you would like more information or if a problem exists, it needs to be addressed quickly and in an effective manner.

Feel free to contact