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CIOT urges ‘soft landing’ for RTI penalties and questions ‘on or before’ reporting rule

October 5, 2012

The Chartered Institute of Taxation (CIOT) is urging HMRC to implement a “soft landing” for Real Time Information (RTI) penalties, especially in cases where employers struggle to report on or before the time payments are made to employees.

The Institute has been vocal in highlighting the difficulty certain employers will have in reporting RTI on time. In particular it has identified the digitally excluded, those who do not use payroll software, rural employers who pay casual workers and those in the hospitality sector, such as pubs paying staff at the end of late shifts, as likely to have difficulty in complying with RTI’s ‘on or before’ rule.

As a result John Whiting, the CIOT’s tax policy director is calling for HMRC to extend the ‘on or before’ reporting rule by up to a week in certain cases.

John Whiting commented, “The CIOT is hopeful the Revenue will recognise the difficulty of cases such as the pub that pays employees at the end of a shift at 3am and will come up with a pragmatic solution that says, for example, that information has to be passed on or within seven days – but that of course depends on the Department for Work and Pensions accepting it.”

“Seven days is probably a fair period – we recognise the difficulty in it and that in these cases we are often talking about relatively low paid people who will be claiming Universal Credit (UC) and that the principle of UC is that it is immediately reactive.

“However to impose an almost impossible to comply with burden on a small business to give somebody the right amount of UC isn’t the right answer, especially as it may not be exactly the right credit this month anyway because an employee’s work this month may be different from last month.

Whiting says he is hopeful HMRC will provide a pragmatic answer to the issue. “Whatever happens the idea of imposing penalties immediately RTI comes in is surely wrong,” he said.

A spokesman for HMRC said penalties were designed to encourage compliance and reassure employers that do file and pay on time that the Revenue takes non-compliance seriously, commenting:

“We understand the concerns that some employers have raised about reporting payroll information ‘on or before’ the time of payment. We are working with employers and other representatives, including our Customer User Group, to find the best way to address these issues.”

When HMRC mandated the use of the iXBRL format in April 2011 for company tax returns it allowed for a two-year period before penalties were imposed. Currently, employers are warned and told their system is not delivering fully but penalties do not start until April 2013.

RTI however is being introduced under a much tighter timetable as the roll-out of Universal Credit from October 2013 relies on RTI reporting from employers and this may force HMRC to adopt a tougher line on penalties.

“If one just stands back for a minute you see that the country is asking employers to do an awful lot on behalf of the government. RTI is another burden on employers and in this day and age we should be requiring employers to do the minimum not just imposing more burdens on them,” said Whiting.

“In many cases you have got employers, whether it be the small rural employer or the big multinational with its share scheme, who will report the right amounts of PAYE and want to do their compliance properly but may not necessarily be able to fulfil their obligation in the exact time specified.

“Rather than immediately hitting them with a penalty HMRC need to understand what the difficulties are and adapt.”

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