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HMRC responds to NAO report to Parliamentary Committee

July 11, 2013


HMRC has been questioned by a Parliamentary committee on the NAO’s recent report finding serious flaws in their implementation of RTI. In an evidence gathering session before the Work and Pensions Select Committee yesterday regarding the progress of the Universal Credit scheme, Suzanne Newton of HMRC responded to concerns raised by the Committee regarding information from the National Audit Office report of 3 July.  Ms Newton, who is the Programme Director for Real Time Information, was asked to give evidence on a number of points raised by the Committee.

When asked how many PAYE and pension schemes were involved in the 2012-13 pilot of RTI Ms Newton appeared keen to emphasise that while the pilot did have the capacity to take on 250,000 schemes, this was not an expectation.  The figure of 250,000 target PAYE schemes in the closing stages of the RTI pilot was widely used in HMRC’s own publications and was never previously qualified by HMRC until Ms Newton’s appearance before the Committee. An HMRC Issue Briefing dated May 2012, one month after the pilot’s start, states “we aim to have around 250,000 pilot employers reporting in real time by March 2013” and a press release of 9 May 2012 also reiterates the figure. The target number of 250,000 pilot employers by its close in March 2013, was also stated by HMRC, before April 2012 when the pilot started, in its detailed impact assessment, and is referred to under the heading of ‘detailed proposal’.

She told the Committee the figure of 250,000 pilot employers was based on the evidence supplied to HMRC by software developers, upon whose advice the operation of the pilot was largely based.  However, this assertion raises the question as to the level of influence ‘software developers’ - meaning the UK payroll software industry - was given by HMRC over the development and implementation of HMRC’s preferred RTI solution.

Newton said that the fact that HMRC did not meet the full capacity of the pilot was not an issue because they had ‘more than sufficient to test’ in terms of the number of employee records and the types of business. reported on this issue on 6 November 2012.

When asked about the issue of HMRC’s failure to stick to its original budgeted cost for RTI, Newton explained that HMRC had initially had a different plan for the project, and that increased costs were due to them having to deliver a different solution.  This appears to be a reference to HMRC’s original, abandoned, proposal to implement RTI exclusively via the BACS payment network as set out in HMRC’s 2010 RTI consultation document. HMRC’s second and more expensive solution to use payroll software as the primary reporting channel, via the internet and Government Gateway, is the one it has mandated for all UK employers.

This switch to a different primary reporting channel, combined with an expanded and extended pilot phase, have resulted in a dramatic overspend of HMRC’s budget for RTI. To date figures from the National Audit Office confirm RTI has cost £356.6 million, £115.5 million more than HMRC expected.

Ms Newton stressed that HMRC are confident of achieving payback by the end of 2014-15, with savings for HMRC and taxpayers of £500 million by this time. However, the Public Accounts Committee has questioned HMRC’s reliance on RTI to deliver efficiency savings by reducing fraud and error in the tax and tax credit system.

HMRC has separately been challenged on its original impact assessment for the costs to UK business of RTI, which claimed RTI’s introduction would save UK business £300m. HMRC has already admitted this ‘saving’ figure is wrong but has yet to update its assessment of the true cost to business despite its undertaking to do so as HMRC gathered more data from its pilot. As reported by, research conducted by the Forum of Private Business found that UK businesses are now paying 11% more to manage payroll compared to 2011, and that RTI has been one of the biggest contributors to the increased ‘red-tape’ burden facing UK SMEs.

Ms Newton also acknowledged the need ‘to update [HMRC’s] old accounting platform’ as a further contributing cost factor.  The problems mentioned by the NAO report relating to weaknesses in the financial reporting and accounting system were not raised by the Committee in any detail: when asked why HMRC’s RTI systems are not fully financially accredited, Newton responded that it is:

"‘not about employers paying the wrong amount, and it is not about RTI not working; it is about how we develop our own accounts with HMRC – how we account for money within HMRC."

The NAO report which clearly states: “[HMRC RTI systems] accounting issues could result in HMRC being unable to correctly allocate and account for some PAYE payments received from employers or to identify and collect amounts outstanding” appears directly to challenge Ms Newton’s evidence to the Committee. The NAO concerns appear already to be confirmed by troubling reports received by and its member bodies that HMRC systems are corrupting employer RTI data submissions.

The other major concern flagged by the NAO report was the lack of technical resilience and disaster recovery mechanisms in place for RTI.  When asked by the Committee about this issue, Newton said that the resilience structure HMRC have in place is cost effective, and that should an event occur which caused a catastrophic loss of data, then ‘claimant selfreporting [sic] would be the ultimate contingency solution’. The Committee did not seek to clarify this statement.

Newton was also keen to emphasise to the committee that SME and micro businesses had been well represented in the RTI pilot – a view which is supported by the data in the NAO report – but could only offer ‘online guidance and webinars’ and the provision of Basic PAYE Tools software as examples of ongoing support for SMEs.

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