Payroll perspectives

The growing complexity of payroll may be bad news for business, but it could be very good news for accountants, says Lesley Meall

Money matters. We all want to be paid the right amount, on time - and Gordon Brown is no exception. But his crusade to maximise tax collection has created significant problems for businesses and their advisers.

It took nearly 200 years for Tolley's Yellow Tax Handbook to grow to 4,555 pages, but since Brown became Chancellor in 1997 it has more than doubled in size. So the employers' job of unpaid tax collector, benefit payer and debt collector is becoming increasingly complex, costly and time-consuming.

'Attention and time has to be diverted from other crucial areas of the business to manage the growing load of obligations,' says David Frost, director-general of the British Chambers of Commerce, and the payroll administration burden is heaviest for those who can least afford it. 'The costs fall as the size of the payroll increases,' says Dr Colin Lawson, from the University of Bath, which is bad news for small employers: the annual cost per employee can range from as little as £30 to more than £100.

All of this has sparked a boom for payroll software suppliers, helped by the financial incentives HM Revenue & Customs (HMRC) offered to those who started filing their year-end PAYE returns online in advance of the mandatory deadline. 'Even people who were previously quite happy filing manually decided to switch over,' says David McHamish, the managing director of Moneysoft, dramatically increasing package sales. And despite a few software glitches most users have been happy.

Business benefits

'I can't understand why anyone would handle payroll manually when they could automate it,' says Bridgette Smith, who uses Moneysoft Payroll Manager to help her run the Westfield Day Nursery. Even tricky areas can be simplified. 'Payroll is strangely never a simple procedure,' adds Andy Cole, who runs a private nursing home, but with the help of Sage Payroll, he has even managed the introduction of stakeholder pensions without a hiccup.

Some small businesses that previously used a bureau have even brought the process back in-house. 'We used to send payroll to an accountant, and now we do it ourselves,' says Heidi Hayes, who uses an online system from Liberty Accounts to manage the bookkeeping and payroll at Body Active Chiropractic clinics. The appeal of the DIY approach has meant a loss of business for some firms but, so far, this has been more than balanced by the number of businesses that have decided to hand the entire payroll operation over to their accountant.

According to HMRC information, the majority of online submissions are now made by bureaux and agents rather than individual companies; and this trend is unlikely to diminish as the mandatory e-filing deadlines for year-end and in-year forms get closer. Firms that offer bureau services seem likely to see an increase in business, and those that don't at the moment could also benefit from being ready and waiting to mop up the slack. But exploiting the strengths of payroll software and systems to establish new revenue streams can be easier said than done: there are many to choose from, and finding the right system for the firm or its clients can be the work of a lifetime.

'Over the years I've used quite a few different systems,' says Pauline Sullivan, who has been providing clients with accounting, bookkeeping and payroll services for around 20 years. 'My first experiences of computerised payroll were with Kalamazoo,' she recalls, and although she now uses Sage to service most of her clients, it cannot meet all of their needs. 'I use Red Sky for one of my construction clients and Aztech for recruitment,' she explains, 'because they have specialised needs.'

Although accountants who operate their own payroll bureau services usually opt for one of the major suppliers, such as Intuit (QuickBooks), Iris or Sage, this is not because they are necessarily the best payroll applications out there, or even always the most reliable. The selection decision is often made because the firm or its clients are already using the supplier's products, and the lure of being able to exchange information quickly and easily can be difficult to resist. But other factors merit consideration.

Practice makes perfect

In theory, any payroll application capable of handling multiple companies can be adapted to run a payroll bureau. In practice, the features are generally too limited for any organisation running dozens or hundreds of payrolls; specialist software can make life easier.

Sage offers a range of payroll applications: Sage Instant Payroll, Sage Payroll, Sage Payroll Professional and Sage Payroll Bureau - but only the latter provides admin and reporting facilities designed to help you handle your clients' payroll as efficiently and effectively as possible. These include exception reporting, with user-defined tolerances for deductions and payments, and reconciliation assistance, with drill-down capabilities from year-to-date figures. Bureau solutions are also available from Artisan Payroll, Moneysoft and Star Payroll Professional.

Not all payroll applications, or suppliers, were created equal, so it is a good idea to do some research before you make any commitment. Although the Inland Revenue Payroll Standard is only granted to packages capable of meeting its increasingly complex list of requirements - from calculating and recording tax and National Insurance correctly, to handling tax credits and student loans - it does not tell you anything about the reputation of the supplier.

Do an online search, or visit a site such as Accountingweb, and you will be able to get a pretty good idea of how impressively the software and its supplier perform in the real world, and find out what numerous other users like and dislike about it - which is vital information if you do not want your payroll bureau service to create more problems than it solves.

Lesley Meall is a writer on business and technology issues.