AAT RESPONSE TO THE TREASURY “CONSULTATION ON PAYROLL GIVING”

1INTRODUCTION

1.1The Association of Accounting Technicians (AAT) is pleased to comment on the issues raised in the Treasury “Consultation on Payroll Giving”.

1.2We have over 50,000 full and fellow members and 71,000 student and affiliate members worldwide. Of the full and fellow members, there are 3,800 Members in Practice (MIPs) who provide accountancy and taxation services to individuals, not-for-profit organisations and the full range of business types.[1]

1.3AAT is a registered charity whose objects are to advance public education and promote the study of the practice, theory and techniques of accountancy and the prevention of crime and promotion of the sound administration of the law.

1.4In pursuance of those objects AAT provides a membership body. We are participating in this consultation not only on behalf of our membership but also from the wider public benefit perspective of achieving sound and effective administration of taxes, in this case the impact of payroll giving on PAYE administration. The issues raised in this consultation may affect:

  • Members in Practice and their clients
  • our employed members and the organisations that they work for.

2AAT MEMBERS EXPOSURE TO PAYROLL GIVING

2.1Since its introduction in 1987, AAT members have been processing charitable giving donations via their payroll activities across the entire range of employers’ payrolls, from large employers to multiple payrolls provided throughcommercial payroll services.

2.2We agree that overall the process of charitable giving has been straightforward from the start with only a few changes over the years since it was introduced. Our only concern is, and has always been, the fact that the deductions are made before income tax calculations but after the computation and deduction of national insurance contributions.

2.3Whilst it has never been the intention of government to give these donations national insurance relief the fact that payroll staff have to make two sets of calculations in order to arrive at the different values of pay for tax and national insurance is a complication, though minor, that businesses can do without.

OBJECTIVE OF THIS CONSULTATION

2.4We note that the Government acknowledges the vital work that charities do in our communities and the Government’s commitment in helping charities to achieve more.

2.5Furthermore, we note that the Government has taken steps to benefit the charitable sector, for example:

  • the introduction of a tax break for those who leave 10% of their legacy to charity
  • increasing the Gift Aid benefit limits for the largest donations.

2.6In paragraph A.9, this consultation sets out a number of areas where the process for payroll giving could be improved. The first is removing the requirement that a PGA must be a charity. This is intended to allow a wider range of organisations into the payroll giving market that could bring new and innovative practices and so drive up competition and standards. Other areas for improvement discussed in the consultation include reducing the time a PGA can take to pass on the donations to charities once they have received them from employers, greater transparency in fees and charges and standardisation of forms.

3THE CONSULTATION DOCUMENT

3.1In respect of paragraph 1.12 in the consultation, we agree that payroll giving has suffered from the growth of alternative methods of donation, particularly with the internet and electronic media making it easier to make immediate donations which are relevant to the donor’s needs. We do not, however, agree with the suggestion made in the condoc in respect tothe ‘lack of promotion by employers of payroll giving’.

3.2In these difficult economic times many employers, especially SMEs,will have business survival as their main business imperative and therefore should not be burdened with the additional moral and legislative load of having to promote schemes which are not directly relevant to their business purposes. There should not be any moral or legal obligation to do more than make sure a scheme is available and that it is featured prominently in recruitmentdocumentation, staff handbooks and similar.

3.3The lack of simple processes to sign up to a Payroll Giving Agency (PGA) currently hampers employer involvement. Anything which could be done to make the process easier will help increase the number of employers who offer schemes to their staff. It appears to us that the PGA have not modernised their processes since the start of payroll giving.

3.4We also aware of the problems that donors may encounter when they leave one employer and start new employment somewhere else, which was outlined in paragraph 1.12. What is not clear is how the transfer of payroll giving can be facilitated in any way because there will be no compulsion for employers to adopt a new employee’s previous payroll giving arrangements. Furthermore, we do not see any reason why employers should be compelled to have a scheme at all. It must be for the PGA or the charities themselves to bridge that gap when donations cease.

3.5We would agree with the comments made in paragraph 1.14 of the document which refers to the regular donations which occur through payroll giving. This is only one of a very few ways that regular donation can be facilitated but we would also point out that donor apathy works best with payroll giving.

3.6AAT does not disagree with the comments and views expressed in paragraphs 1.13 to 1.20.It is clear to us that payroll giving still has an important place in therange of donating methods and that over the years it has not kept up to date with changes in technology.

3.7Whilst there mightbe concerns about the limiting effects of a single PGA (1.19) we feel that a single body could possibly make things much easier for employers, particularly small employers who do not necessarily have the time or resource to undertake research into identifying the best PGA from a number of alternatives. Furthermore, we feel that any fears over monopolistic concerns could be addressed by the introduction of safeguardsto ensure the body maintained its effectiveness. Taking our comments into account we do not feel there to bea compelling reason to totally discount the idea of a single solution provider. Infact, we would wish to see it as part of a formal review.

3.8 It is reasonable for employers to “facilitate” payroll giving by having the administrative procedures in place to enable employees to donate. It is not reasonable for employers, especially small employers, to have to “promote” payroll giving as it should be the charities and PGAs that should be primarily responsible for “promoting” payroll giving.

3.9We agree that the implementation of payroll giving schemes should not be mandatory (paragraph 1.23). However, if society is serious about increasing the funding provided by this method then perhaps Government should set a time limit to achieve significant voluntary increases in donations from payroll giving before considering mandation.

4CONSULTATIONQUESTIONS

Question 1: Do you agree that there is scope to improve Payroll Giving to increase the number of:

  • employers offering a Payroll Giving scheme
  • donors using Payroll Giving

to lead to additional giving overall, without affecting other forms of giving, such as donations made under Gift aid?

What would you recommend to increase these numbers?

4.1We agree that there is scope to increase both the number of employers offering a payroll giving scheme and as a consequence the number of donors.

4.2According to the statistics given in the document only 2% of employers have anactive scheme and only 3% of employees actually donate using payroll giving (paragraph 4 in the Foreword). Taking into account the current low numbers it is not unreasonableto assume that an investment of a small amount of effortcould lead to significant improvements. AAT does not feel qualified to comment on whether any increase in the use of payroll giving could be achieved without reducing other formsof giving. However, we are aware of the following, as an example, which is in respect of a group ofcharity employees who commenced making donations following a donation drive by a PGA. Many of those who started making payroll giving donations were actually switching from other forms of giving. In fact, many switched back when it was clear that donating by payroll giving was found to be“administratively painful”. The problems were further compounded by the fact that the employer involved also found the process was unclear and as a consequence after the initial surge in donations the amounts contributed soon fell back to levels experienced prior to the drive. It was noted that another source of irritation to donors wasthe seemingly lengthy transfer time of up to 90 days with the employer’s chosen PGA and the “high level of charges”. From our knowledge of this recent event it is clear that streamlining the process would have meant many of the donors would have remained in payroll giving. We are concerned that this might be to the detriment of other donation methods.

4.3In section 3 we have already indicated where we feel that changes are needed. For example, the process by which employers sign up to a PGA has to improve, though it does not necessarily follow that there is any need for an increase in the number of PGAs. In fact, we feel that making it easier to migrate to a new PGA would be more helpful. Currently the employer who was used as the basis for our example (4.2) uses a well known charity as its PGA and knows well that both the transfer time and charges are at the bottom end of performance and the top end of charging. Such knowledge deters employees from donating in this way. The problem is then compounded by the fact that the employer operating the scheme does not have sufficient resource to examine their ability to transfer to another PGA.

4.4We strongly recommend that consideration should be given to some form of mandationregarding having apayroll giving scheme in place.

4.5A further aid to take-up would be the design and introduction ofsimpler forms of commencement.

4.6Employers who engage over 50 employeescould be compelled to allow charities and payroll giving organisations time to promote payroll giving in the workplace. This would help address the currently difficult process charities experience in obtaining access to employees.

4.7A final suggestion that we feel is worthy of further consideration is thatagents, i.e. commercial payroll service providers, could be enabled to contract with PGAs in order to provide payroll giving facilities within their client base without the need for individual employers to have their own scheme. A simple sign up facility controlled by the agent would increase involvement significantly.

Question 2: Do you agree that non-charitable organisations should be allowed to enter the Payroll Giving Agency market to improve the supply side of the sector?

If non-charities are allowed to enter, how do we ensure a level playing field between participants?

4.8Whilst, as we have previously stated, we cannot see any reason to increase the number of PGAs (there are currently 16 approved organisations), however, we donot have objections to the market being opened up to others from outside of the charity sector.

4.9Taking into account the abovewe suspect that increased competition between providers would give rise to some positive pressure for change. Such as, downward pressure on fees and turnaround times in respect of the handlings of funds. Even now, as observed in 4.3,there is a need for a better process to facilitate moving from one PGA to another, as well as a need for a greater amount of public information about the performance and charges of each of the PGAs.

4.10If the market were to be opened up we believe that there would be a need for legislation to be introduced to ensure transparency in respect of charges and turnaround time of funds. Failure to do this could result inemployersfaced with having to select a PGA from an extended list, subsequently staying with the same PGA for convenience rather than change, to the detriment of donations overall.

4.11Developing our point made in 4.10 in respect of legislation we also feel that isscope for the imposition of a maximum charge on donations. In effect a cap, similar to the regime applied to pension funding. Such an action would give donors protection from excess charges and, also,ensurePGAs think more about how they organise their activities.

Question 3:

Do you agree that the maximum time between the PGA receiving the money or the notification from the employer/pension scheme administrator and the PGA paying the money to the charity should be reduced from 60 to 30 days.

Is 30 days the right target to aim for and do you see any disadvantages in reducing the time limit.

4.12We agree that the time limit for PGAs should, in respect of the receipt of, and payment out of monies,be set at no more than 30 days. As we have already mentionedin 4.2 the ability of PGAs to hold donors’ funds for 60 days is discouraging donors from using payroll giving. This, added to the period an employer has to pay across the deductions, means funds can take up to 94 days to pass from deduction at source to their receipt by the donor’s chosen charity.

Example:Employee’s paid on the 6th of the month, with the payment to the PGA by the 19th of month following the month of deduction, plus 60 days.

From a business cashflow perspective it is, perhaps, unsurprising that some businesses take the maximum permissible time to pay over the deductions. This delay, as demonstrated above, can then be further compounded in cases where a PGA uses every minute of their 60 day allowance, to the detriment of donors and charities, before forwarding the donors’ funds to the allotted charity.

4.13Whilst we cannot see any reasonable way that government can legislate to reducethe employer pay-over-period and we acknowledge that pay days of the 6th of the month are very rare. It should be noted that we are not of the same opinion in respect of the period from receipt to payment allotted to PGAs. As written in 4.12 wedo not believe that it would be a problem for PGAs to remit funds received within amaximum of a 30 day period. In fact, we have spoken to a PGA who has advised that they attempt to work to a 30 day turnaround time.

Question 4:

Do you believe that Payroll Giving forms for donors and employers should be standardised?

Within 30 days of a PGA receiving notice that an employee has left a company, or when a PGA hasn’t received a donation form a regular donor, should the PGA write to the donor with:

  • a standardised new enrolment form for payroll giving for them to complete and pass to their new employer?
  • a direct debit/Gift Aid form made out to their existing charity?

In the absence of any notification of leaving, how long should a PGA wait before writing out to the donor? Would a period of three months be appropriate?

Should the PGA also contact the charity informing them of the employee and their pending, or assumed, departure, allowing the charity to contact them directly (where the donor has given consent for their details being passed)?

What else can charities, PGAs and other stakeholders do to ensure that when a donor moves job they maintain their charitable giving relationship?

4.14We cannot see any particular reason whypayroll giving forms should be standardised. It should be noted that in making such a comment we feel that PGAs should be free to design their own forms in their own corporate style and format. Furthermore they should be freeto request additional information specific to their own internal processes. We feel thatthrough leaving the structure and layout of the forms to the discretion of the PGAs they will be able to set the documents out in a way that best suits their internal processes.

4.15AAT is of the opinion that PGAs should be able to write to leavers and lapsed donors in order to attempt to establish both the reasons for the cessation of donations and some understanding in respectabout the donors’ subsequent plans.We would expect PGAs to honourthe right of donors not to respond.

4.16We would not support any suggestion that employers should automatically issue notices to PGAs that an employee has left and we are pleased this has not been referred to within the condoc.

4.17The process, we consider ought to be that the PGA should write to the donor toencourage them to recommence donations either with their existing employer or, if applicable, with the new employer and at the same time provide the necessary forms. The forms should include something for the employer which makes it easy for the employer to sign up with the PGA, assuming they do not already have their own arrangement.

4.18We do not consider that including Direct Debit/Gift Aid forms would be necessary at this stage. However, this could be done as a follow-up actionin the absence of a response from the lapsed donor.

4.19We agree with the proposal for a three month delay, unless the PGA is aware the employee has left, perhaps as the result of a voluntary notification by the employer.