PAYE - a clever but simple system we take for granted

Sir Paul Chambers was never a household name, even in his lifetime but he came up with an innovation that changed the economy. This was back in the early 1940s when the world was at war and those left behind in Whitehall began to think about the post-war era. We all know about the other institutions founded then, the National Health Service and state education for instance but less is said about the seismic shift in the way tax is collected. Before then, most people paid tax in arrears, calculating what they owed and paying a lump sum to the taxman. The system was clunky and fostered resentment every time tax came to be collected. Chambers’ idea was that pay should be deducted directly from most salaries before it reached the employee’s wallet. The system was called pay as you earn or PAYE. 

Most employees these days have their taxes collected via PAYE, with the upshot that they never see their full wage, a fraction of which is directly collected and sent to the government on their behalf by their employers. In the early days PAYE only covered income taxes but since then other taxes including national insurance have been added and the system has been exported and copied around the world. There is a famous quote that “the act of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of squealing”. And the reason the Treasury adores PAYE is that it plucks the feathers far more efficiently than a system where people actively have to hand over the cash themselves. It is no coincidence that council tax is among the least popular of all taxes because you actually see it leave your bank account.

[with thanks to Ed Conway of The Times 19/2/21]

Funnily enough PAYE is easy in another respect, in administering the scheme through a payroll system. PAYE is all based on a simple method of a personal tax code. This code may vary through a year for an individual any number of times for different reasons but usually it’s the same all tax year. For ourselves providing a payroll bureau service nowadays these coding changes are all handled automatically online. So no errors and no delays, better still no administration cost. So whichever way you look at it PAYE is very successful.

The opposite extreme however is furloughing which for us handling on behalf of our clients is a real minefield and at times a nightmare. The UK is on the 5th version, so far, and each one is different where it counts – in the detail. Each time a new version is announced the biggest challenge is obtaining all the detail required in sufficient time - surprisingly difficult. Whereas PAYE is totally automatic, furloughing is just the opposite – it’s totally manual, with no system checks to help. This means that with hundreds of claims being made, covering thousands of employees, inevitably mistakes will be made. It’s also a costly extra task. The pressure is great but it’s just something we have to cope with.


 

This entry was posted in Payroll and tagged in Payroll, PAYE by Caroline

Can anything be more important than Reporting?

Well not really, as no company would get very far if it didn’t report PAYE, VAT or year end accounts. But what about where it’s not compulsory, such as management accounts? Judging by the absence of such from most businesses it looks like they don’t matter. This is a pity because if you can measure it you can improve it, assuming you want to?

"We have been working with BookCheck since 2019 and there were two keys reasons for Young Bristol making the move; namely their professionalism and their Advanced Reporting system. The quality, detail and flexibility of their system allowed us to customise the reports to meet our ever changing business needs. The clarity of the reports now ensures I can robustly and confidently report on the charity's finances to the Trustee Board as well as potential funders." Lee Williams, CEO, Young Bristol.

Just about all of our clients have monthly, a few quarterly, management accounts. Before the days of Xero we searched for a method of linking Sage to Excel, rather than ODBC links which are tricky or keying data which is time consuming and risks errors. We wanted a template that we could run automatically to produce a smashing looking report in Excel. It took us a full 10 years of false trails when in 2010 we discovered the software solution. It was a huge breakthrough at the time and we called it BAR - BookCheck Advanced Reporting. 

Since then BAR has been our tried and tested brilliant method of producing 100% tailored accounts – to specific client requirements. They’re all different. Some are 4 pages, others are 40. Some are split 20 ways by P&L. Some have graphs and bar charts. When the reporting is client designed the magic is that there is a much greater likelihood that the information will be understood and therefore used. That’s rather important.

Then along came Xero. At first we used the same software and it sort of worked, however we had technical issues like the slowness of data transfer and some data not being available for reporting. It was too imperfect so we looked once again for specific software to help. It was another long journey. After 2 years we found a good solution, we migrated, learned and trained. We converted reports and settled down. But then, guess what? The software company was bought by a huge business which decided to close down our tool. Once again we started a search and once again we’ve found an excellent solution. It’s not easy to use for most folk but we had the skills to master it and it’s really powerful.

This may not sound that impressive but what we’ve developed is literally world leading in the methodology. Many finance departments produce in Excel but not in the secure, automated way that we report, which saves time and minimises data errors. So we’re pretty proud of our achievement which under the bonnet is almost unknown to our clients in how we do it – it’s the results which score for them.

The moral of the story - first report and then do it the best way. By the way, just check first that the data is sound.

 

This entry was posted in Business Development, Management Accounts by Caroline