CHAPTER 6: MANDATORY ELECTRONIC PAYMENTS
PAYMENTS, CLAUSE 201
6.1 The Explanatory Note on Clause 201 states
that it allows the Inland Revenue to require large employers (defined
as persons paying PAYE income to 250 or more recipients
to use electronic means for the making of payments.
The Clause gives regulation-making powers covering such things
as the specification of acceptable methods of payment
and the imposition of a surcharge for failure to comply.
By way of background, the Note states that regulations under the
Clause will provide for payments to be made electronically from
6.2 One witness spoke for a majority of
our respondents, when he stated: "Electronic methods are
the way forward, but we question why compulsion is necessary (with
implicit or actual penalties for failure): should not the route
be to make systems so attractive (and guaranteed robust) that
all will want to use them?"
Another witness, while echoing that view about the use of compulsion,
was critical of the detail of the penalty regime for failure to
comply. He said that a fine of up to 10% of the tax payment was
entirely disproportionate for a regulatory failure of the type.
Some concern was expressed to us about possible practical difficulties
for businesses which were on the borderline (about to become "large
employers") or those which might take on significant numbers
of seasonal employees (Q 164).
another respondent took a more pragmatic and open view about the
possible need for compulsion at the margin in the interests of
good administration (Q 581).
6.4 Our attention was drawn to the Inland
Revenue's Partial Regulatory Impact Assessment (PRIA), where the
rationale for the introduction of this measure was stated as being
to ensure payments of PAYE and NIC are prompt and secure [PRIA,
paragraph 1] and to eliminate the cash flow costs of postal
delays and cheque clearance [PRIA, paragraph 3]. One witness,
basing himself on the Inland Revenue's own analysis of the problem
in the PRIA, suggested that it was two-fold, namely cash flow
and late payment. By dealing with each separately they could be
tackled as effectively as by the Clause, but without the undesirable
element of compulsion as to use of an electronic method of payment.
He argued that the cash flow problem could be solved by making
the due date of payment the date when the funds were cleared,
instead of the date of receipt of the cheque. And the late payment
issue could be dealt with by the imposition of an interest charge
or penalties or both (Q81).
6.5 Dave Hartnett (Inland Revenue) told
us that about a third of all "large employers" still
paid by cheque because of the cash-flow advantages to them. The
normal delays associated with posting letters in remote locations
were being exploited by certain employers. So were those delays
inherent in the cheque-clearing system itself. Clause 201 was
intended to remedy these shortcomings. He acknowledged that an
alternative approach using "date of cleared funds" as
the due date, might have worked, but mandatory electronic payment
was already the law for VAT, and an Inland Revenue precedent existed
in the Tonnage Tax. Ministers had opted to follow that route (QQ 777/8
discussion was set in context for us by an article in the Inland
Revenue Employer's Bulletin for May 2003. This sets out a timetable
to extend the related procedure for electronic filing of employers'
returns, for which the legislation is already in place. A rolling
programme provides for compulsory electronic filing of returns
as follows: 250 employees or more, deadline 19 May 2005; between
50 and 249 employees, deadline 19 May 2006; fewer than 50 employees,
deadline 19 May 2010. We noted, particularly, that financial incentives
are being given to employers with fewer than 50 employees to file
electronically earlier. This demonstrated to our satisfaction
that the Inland Revenue were alive to the advantages of a carrot
and stick approach.
6.7 We concluded,
in the light of what we had been told by the Inland Revenue, that
it would not have been appropriate to offer a financial incentive
to encourage large employers to switch more rapidly to electronic
43 E.N Clause 201 paragraph 3. Back
E.N Clause 201 paragraph 1. Back
E.N Clause 201 paragraph 4, first indent, concerning subsection
E.N Clause 201 paragraph 9 concerning subsection 8. Back
E.N Clause 201 paragraph 14. Back
See evidence by PricewaterhouseCoopers (Volume II, HL Paper 121-II). Back
See evidence by Institute of Chartered Accountants in England
& Wales (Volume II, HL Paper 121-II). Back