PAYE RTI News
5.5 million PAYE errors in first year of RTI
June 20, 2014
HMRC estimates around 5.5 million people will have paid the wrong amount of tax through Pay As You Earn in 2013-14, The Telegraph has reported today. The figure is an increase on the 5.2 million adjustments which were recorded for the tax year 2012-13, with the average error estimated at £300.
3.5 million people will now face attempts by HMRC to recover underpaid tax – mostly through adjustments to tax codes. While there are safeguards in place designed to reduce the risk of financial hardship to the taxpayer as a result of tax debt being recovered by changes to an individual’s tax code (known as 'coding out'), it will be an unwelcome surprise to significant numbers of taxpayers. For those 2.5 million who have over paid tax, HMRC say they will send a cheque within 14 days of the date of their P800 notice.
This number of adjustments suggests that the use of Real Time Information has not yet had any significant impact on the operational accuracy of PAYE. Responding to The Telegraph, an HMRC spokesman said that the increased number of corrections was mostly due to the fact that there were more people in work in 2013-14 as a result of the economic recovery. HMRC also said (quoted in The Daily Mail) that: “the effect of Real Time Information is not reflected yet as it has not bedded in but, over time, RTI will help to reduce the number of cases that have to be reconciled. The estimates quoted for reconciliations in 2013-14 are based upon actual numbers in 2012-13.”
The introduction of RTI was intended to result in a reduction in the number of underpayments and overpayments of tax by bringing the reporting of changes to employee circumstances and amount of tax paid into the tax year, enabling a faster response by HMRC. Kate Upcraft, independent payroll expert and member of the HMRC RTI taskforce, told The Telegraph that “Taxpayers have spent hundreds of millions on RTI and employers have had to spend hundreds of millions to use the new system, so we are entitled to expect significantly fewer errors in the reconciliation process.”
In a posting on business news site Bdaily, personal taxes expert David Heaton of accountancy firm Baker Tilly expressed concern that RTI does not appear to be working properly, saying that “RTI should have done away with [the] discrepancies” which existed under old-style PAYE. Under RTI, changes to circumstance such as a new job or income from a pension being received are reported to the Revenue in real time, and should be reflected in the employee’s tax code. Heaton asks “why are there more P800s this year, with RTI in full flow, than last year, when RTI was only a pilot?” The fact that the number of adjustments has increased leads Heaton to speculate that some aspects of RTI are either “not working”, or “the data collected promptly and accurately by RTI are not being processed promptly and accurately.”
The volume of corrections emphasises the importance of taxpayers checking their tax code and ensuring that details held by HMRC are correct. The failure of the expected reduction in the number of P800s being issued to materialise, appears to indicate that RTI cannot yet be relied upon to provide HRMC with accurate data about an individual’s tax position in real time, and that interventions from accountants, employers and taxpayers themselves will be required to aid the operation of PAYE for some time to come.
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