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HMRC reveals settled position on RTI Penalties

June 18, 2015


HMRC yesterday published a new approach to automated RTI late filing penalties for employers. The announcement made via confirmed an employer will not automatically incur a late filing penalty provided an FPS return is submitted within 3 days of the first pay date employees were paid for the period, which HMRC first announced four months previously on 17 February.

Significantly the announcement effectively heralds the introduction of suspended employer penalties for late reporting of RTI. HMRC has described it as a “more proportionate approach”.

The clarification follows various numerous changes to HMRC’s proposed penalty regime for late reporting since RTI was introduced. Yesterday’s announcement of 17 June appears to be HMRC’s final settled position on late filing penalties.

It does appear to usher in suspended RTI penalties as HMRC reserves the right to apply penalties accrued but not yet charged on a future occasion:

“Even if employers do not get a penalty, they are required by law to file on time and if they do not  may be charged a penalty on a future occasion.  The deadlines for sending PAYE information stay the same, including the requirement to send PAYE information on or before the time that employees are actually paid or due to be paid."

RTI late reporting penalties may be applied retrospectively, at HMRC’s discretion. The new penalty regime which HMRC describes as “risk-assessed” does not say how many times an employer can be ‘late’ before they may receive a first penalty and possibly additional penalties retrospectively from previous late filings.  No further information has been given by HMRC on how the new RTI suspended penalty regime will operate. Late reporting penalties continue to be automated so a consistent set of rules is required by HMRC’s internal systems to know when to generate a chargeable penalty notice automatically.

The move comes in the wake of HMRC’s February consultation on a wholesale review of all UK tax reporting penalties, including personal tax and VAT not just PAYE, and news broken by the Telegraph that HMRC was abandoning penalties for individual taxpayers for late submission of Self-Assessment annual tax returns.

The Telegraph story, published on 29 May, broke the story based on a leaked HMRC memo that HMRC has effectively decided to grant an amnesty to up to 890,000 individual taxpayers liable to a £100 fine for filing their personal tax return late, provided they could offer a ‘reasonable’ excuse. The Self-Assessment pages of HMRC’s website set out what HMRC regards as a reasonable excuse, which includes issues with HMRC’s online services and other computer issues. AccountingWEB described the change of Self-Assessment policy as a ‘U-turn’ but pointed out that HMRC had widened their definition of what constituted a reasonable excuse.

It appears HMRC’s announcement of its substantial relaxation of its previous Self-Assessment late return penalty regime and its cancellation of such penalties already issued – which HMRC then confirmed on 5 June – was brought forward in response to the leaked Telegraph story. HMRC said: “There’s been a lot of coverage over the last few days on our approach to £100 penalties for people sending in their tax return late. We want to focus more and more of our resources on investigating major tax avoidance and evasion rather than penalising ordinary people who are trying to do the right thing.

These changes in HMRC’s Self-Assessment and RTI penalty policies come several months before HMRC expected to publish its official response to its comprehensive February penalty consultation.

The significant relaxation of the original RTI penalty regime proposed by HMRC coincides with the much softer tone adopted by HMRC on RTI in its most recent employer bulletin also released this month.

“We recognise that RTI, like any system, isn’t perfect; it needs to continue to evolve and improve. And there is still a way to go before we can fully exploit the data that we receive. We will continue to monitor employer experience of reporting PAYE in real time to make sure the improvements we have made are effective, and identify where future development would be beneficial.”

The softening of the automatic application of RTI late reporting penalties, may make it easier for HMRC to manage the widely reported issues of unexplained error and PAYE reconciliation issues that have persistently dogged RTI in the 2 years since its introduction.

This month also saw HMRC announce its annual P800 reconciliation of PAYE account balances for individual employee taxpayers, which it describes as “a normal part of the PAYE (Pay as You Earn) system – to check that people have paid the right amount of tax in 2014-15. This has been a key feature of the PAYE system since it was first introduced over 70 years ago.

RTI was intended, as HMRC originally made clear, to eliminate annual returns and annual reconciliations for all but a very small number of taxpayers as PAYE in real time would automatically capture changes in employment and taxable benefits: “Individuals changing jobs in year would [under RTI] be much more likely to pay the right amount of tax during the year and avoid the need for end of year adjustments”.

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