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Office of Tax Simplification recommends review of RTI

October 16, 2014


In its final report on the competitiveness of the UK tax administration system, the Office of Tax Simplification has made a number of recommendations regarding payroll taxes, including a post-implementation review of RTI, the harmonisation and integration of PAYE with National Insurance and improving ease of access to the PAYE system for short-term business visitors.  The report examined the full range of UK taxes and how these are administered by HMRC, including how well businesses are supported by HMRC, and the how these impact on the UK’s competitiveness in the wider world as a place to do business.

A post-implementation review of RTI is one of the three key recommendations made by the OTS relating to payroll taxes.  This review, said the OTS, should particularly examine “whether the ‘on or before’ reporting is actually necessary to operate the Universal credit system”, and also whether the current easement to the on or before rules which allows small employers to report before the last payment date in the month could be extended.  Although it was noted that most feedback regarding RTI had been positive, the OTS stated that employers had so far failed to see any benefit to their businesses from the implementation of RTI, and all had suffered time and financial costs in order to comply with the new legislation. 

Stakeholder feedback to the OTS also found that while RTI works well for most employers, the payroll compliance burden for those who pay staff more frequently has increased significantly.  For agents handling many payrolls, especially where payments to staff are made frequently, the burden of reporting has also become much greater since RTI’s introduction.  The OTS identified the main difficulty in these situations as the ‘on or before’ rule, and stated that “many businesses and advisers fear the impact of penalties when they do start” (it should be noted that this report does not reflect the latest penalty position, and assumes that penalties for late filing for all employers start in October 2014).  Compliance burdens may in fact be higher than shown in the OTS report as this uses data from the 2013 World Bank results, compiled for the year 2012.

Some stakeholders had suggested that payroll software companies should issue automated filing reminders to assist in the timely filing of RTI returns, as it was possible to run the payroll and yet forget to file the RTI return.  Software providers themselves told the OTS that HMRC staff were reluctant to discuss employers’ affairs with them, making it difficult to resolve issues.  The OTS recommends that legislation is passed to make it possible for employers to give their authority for their payroll software provider to discuss their issues directly with HMRC staff, in order to facilitate easier resolution of complex problems. 

Other recommendations relating to payroll and RTI were the improvement of communication with frontline HMRC staff on RTI issues to improve customer service, as some agents and employers had received unsympathetic treatment from call centre staff when trying to resolve issues because the HMRC staff member was not aware that was a widespread issue was affecting taxpayers and agents.  The OTS also noted that HMRC needs to continue to work on reducing waiting times for its helplines.  Another point raised was that HMRC should continue to develop its digital services to increase efficiency of interactions with taxpayers, for example the use of structured emails to set up an annual PAYE scheme.

In their notes from stakeholder feedback, the OTS touch on the problems which have affected the operation of RTI, including the generation of duplicate employments.  This report does not refer to the problem of the incorrect P800s which only emerged into the public domain last week, and so only refers to “a limited number of cases” of duplicated records caused by changes to employee information reported to HMRC.  The number of disputed charge cases which HMRC was working to resolve by September 2014 is given as 12,500, but this information is also likely to be out of date.  However, no more recent data is available from HMRC on the number of disputed charge reconciliations currently being tackled, nor is the figure likely to emerge given HMRC’s reluctance to reveal information of this type.  This is evidenced by HMRC’s refusal to grant an FOI request regarding the number of RTI penalty warning letters which have so far been issued.  The request was refused under exemption 31(1)(d) Freedom of Information Act, on the grounds that releasing the information could “prejudice the assessment or collection of tax.”  In their written refusal, as posted on the Payroll World website, HMRC stated that they believe “disclosing the number of penalty warning letters issued could undermine the effectiveness of the penalty regime which relies to some extent on the deterrent effect of those penalties.”

The call for a review of RTI from the OTS is likely to be welcomed by accountancy bodies who have reacted with concern to the issue of incorrect P800s.  Natalie Miller, President of the Association of Taxation Technicians, called for a review of RTI in light of the P800 issues, saying “It is in no-one’s interest that RTI stumbles from problem to problem; that just threatens its credibility […] What we need is a thorough investigation of what has happened by a team which includes not just HMRC personnel but external specialists.”  The ATT argue that a full review is necessary for all users to feel fully confident in RTI, and said that they and other professional representative bodies “stand ready to assist HMRC in that review.”

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