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HMRC scores RTI penalty own goal

December 3, 2012


HMRC’s penalty regime for RTI has been criticised by accounting experts within 36 hours of being announced.

The interim RTI penalty regime announced just days ago removes the incentive for employers to report in real time, according to experts. The single most important aspect of HMRC’s PAYE reform and the introduction of real time information reporting is that employers are required to report PAYE to HMRC ‘on or before’ the time they make payment to employees.

HMRC published its RTI penalty regime on Thursday last week, stating there will be no penalties until April 2014 if RTI internet Full Payment Submissions (FPS) returns are sent late, in effect after employees are paid.

However, while HMRC put penalties for late filing on hold for the first year of RTI, meaning no penalties will be charged if an employer fails to report RTI ‘on or before’ an employee is paid, they intend to enforce penalties for filing inaccurate RTI returns from April 2013 when RTI starts. Experts have warned that by charging penalties for inaccurate RTI returns, HMRC have removed the incentive for many employers to report in real time ‘on or before’.

HMRC’s publication of their interim penalty regime was followed the next day by doubts expressed by leading tax experts, who said these rules will result in employers not sending their FPS returns in ‘real time’ in an effort to ensure they are 100% accurate, negating at a stroke the central tenet of RTI.

Tina Riches, the Technical Director of the Chartered Institute of Taxation (CIOT), a leading authority, was reported by PayrollWorld the next day, on Friday 30th November, as saying: “If employers look at the whole package together, rather than get the information in on time they may well decide that for them it’s better to delay sending it in and making sure it’s accurate.

“This isn’t really the whole point of RTI, which is reporting as things happen, but the way penalties are set up in the first year will discourage people from doing that.

“As an employer I would think twice about hurrying to get a submission in on time during that first year – I would put more effort into making sure it’s accurate, if it’s late you are not going to get a penalty.

“I can see that HMRC are in a difficult position, there is a balance between getting people onto the new system and getting up to speed with it, but equally not letting those who wilfully do not comply to get away with that. HMRC have gone for this half-way house, but it could to some extent backfire because there is now an incentive to delay and make sure the submission is completely right rather than try and report in real time.”

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