My suspicions on UK productivity

The UK has a productivity challenge: workers don’t appear to be producing as much in an hour as they could, compared with workers in other developed nations like US, Germany and France. This is not an easy problem to unravel because there are many inter-dependencies and indeed many approaches to measure true economic output. The question is why is a relatively modern country not generating more output per capita?

One answer could be that the average UK employer retains more manpower than it needs, possibly to avoid loosing people it has invested in in the past and possibly to avoid future re-hiring costs. However, this situation usually makes a business quickly uncompetitive, and so unlikely to be a sustainable trend.

Another possible answer is that UK businesses are slow at investing in new technology such as production line machinery, computer controlled systems and advanced processes. Again, this might well be the case in specific cases, but the UK’s population are pretty early adopters of technology and don’t seem to be adverse to buying tech, and so I’m fairly sure this filters down into the organisations in which they work too.

The UK has an interesting business demographic: according to the Federation of Small Businesses, at the start of 2017 99.9% of UK businesses were small or medium-sized (SMEs), employing 16.1 million people which is 60% of all private sector employment in the UK. SMEs accounted for 51% of the UK’s private sector turnover.

And as a small business owner myself, I think I may have an inkling as to where the UK’s productivity falls short. SME’s that, as we have seen, make up the majority of the UK’s economy, have to do so much more than simply run their business of producing stuff (products or services) to generate revenue.  There really is lots of paperwork and compliance that eats into time that could otherwise be more productively spent. The very fact they are small or medium in size means that they don’t have the scale to absorb or distribute these mundane tasks and many don’t have the resource to outsource either.

By way of example, I dread the monthly payroll because I just know it will take several hours to prepare. Calculating gross staff pay based on hours worked is fine, and a necessary task in employing someone, as indeed is the work of instructing the bank to make the payments. However, dealing with the complexities of PAYE in which tax code notices arrive (sometimes by post, sometimes within the maze that is the Government Gateway), National Insurance letters change due to employee age or starting / leaving an apprenticeship, and ensuring student loans, sick pay, maternity leave and paternity leave are all complied with is much more time consuming. Also, if someone is on a minimum wage, their age and entitlement changes as time passes and this too needs to be monitored. PAYE then needs to be filed in realtime and payments to HMRC setup. Then there is auto-enrolment, and the need to monitor staff age and eligibility, calculate pension contributions, and ensure that these payments are made correctly. On top of this, each financial year the tax codes change, pension thresholds change, minimum wages change, and end of year payroll data needs to be submitted. Even if your business doesn’t pay anyone but still has a payroll (for example because directors may be being paid occasionally or have some expenses paid), then nil returns also need to be filed each month.

Imagine if all this was taken away from the business owner: what if the gross pay for each employer was calculated and sent to an intermediary bank account from where HMRC applied the individual tax codes, national insurance letters and pension requirements?  HMRC could then accurately deduct tax and national insurance, redirect auto-enrolment pension payments, and send on the net pay to the employee’s own bank account. Realtime reporting would be inherent in the system, and HMRC could then calculate and bill the employer for their contribution and deduct it by direct debit around the 20th of the month, taking tax, national insurance, and pension contributions in one go.

In this scenario, the leg work is being completed by one organisation on behalf of all the many SMEs, fewer calculation errors would be made (which also require huge efforts for an SME to retrospectively correct) and the business will have a few more hours each month to be more productive.

And then we could tackle VAT, corporation tax, business licensing, annual returns, business rates, waste duty of care, import/export licensing, and so forth in a similar way so as to free up even more time to get on with the job at hand and produce useful things that contribute to the UK economy.


HMRC needs to get its online act together

Today, my co-founder and I decided we would register our high technology UK-based start-up for VAT. We are already enrolled on the HMRC’s digital service called Government Gateway, so it ought to be a 5 minute job to set the wheels in motion for VAT registration. Not only that, we’ve done this before for other businesses, so we already have some experience of the process.

Anyone who has wrestled with the Government Gateway service either for personal or business use will know that it is woefully inadequate and generally unfit for purpose. But we logged on in the hope that today would be different…

On entering the Government Gateway, our company page displays:


The service shows that we are already registered for Corporation Tax and we can see a long alphabetical list of other delightful services on which we could enrol. Heading down to V for VAT we find a list of potential links:


But none of the options are simply “VAT registration”, and indeed “Submit VAT Returns” slightly higher on the list isn’t quite right either. Looking back through the entire list, a contender is back near the top: “Change VAT registration details”.  On the face of it, this again is not worded quite right for what we’re looking for, but we click through out of desperation:


It turns out that this is in fact very promising, as this page clearly states “For businesses to apply for VAT registration”.  Bingo, we clicked continue…


And our optimism fades once more. The first box of the form requires a VAT number, essentially the one thing we are trying to apply for. Leaving the box blank is not an option. This is presumably a service on which to enrol to change existing VAT details, not to register in the first place.  We’ll have to head off and do some more research and come back to the task of registering for VAT later.

In the meantime, perhaps we can register for the pay-as-you-earn (PAYE) employer payroll service instead, as we are keen to employ our first member of staff and pay ourselves as directors going forward. We head back to the list of services on which to enrol and find the closest link for our needs. This one is titled “PAYE for Employers”, which sounds spot-on for our requirements.


And the next page confirms that our expectations are likely to be met:


Yes, we want to be able submit PAYE forms, and presumably this includes the realtime reporting (RTI) requirements that we will also need to comply with. We head on…


And once again we are stuck. The form asks for the Employer Reference and Accounts Office Reference, the two bits of information you get when you enrol on the service. This is obviously not the place to enrol on the PAYE service for employers.

At this point the air is blue with vented frustration. Why is it so hard?

Googling shows that there are other forms on the web reachable via the and HMRC websites, somehow disconnected from the Government Gateway. To register for VAT we need to navigate through a series of links here, and to register for PAYE, we find the necessary starting point here.

What then is the point of the Government Gateway enrolment service if it can not adequately serve up the forms for basic company tasks like VAT registration and PAYE Employer registration? I don’t have the answer, but I do have a suggestion: how about adding links to these pages mentioned above in the list given in the Government Gateway?

The UK’s productivity is low and I suspect some of this is down to busy entrepreneurs wasting valuable time navigating through the HMRC’s poorly presented and confusing forms. This situation is simple to change and would help the UK’s small and medium size businesses so much. Please for the love of God can those responsible get this fixed?

Adrian Burden is author of Start To Exit: How to maximize the value in your start-up.