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RTI penalty regime consultation closes

September 6, 2012

The consultation period for HMRC’s proposed penalty regime to ensure employer compliance with RTI reporting obligations closed today.

Published on 14 June, the consultation document, ‘Securing Compliance with Real Time Information – Late Filing and Late Payment Penalties’ sets out HMRC’s thinking on penalties and the various options it sees for charging penalties for the failure to report RTI. The intention of the penalty regime is to maximise compliance with RTI.

The document makes clear that the penalty regime under consideration is concerned only with the failure to report PAYE in real time. Existing penalties for late payment and not paying in advance of payment deadlines will continue unchanged. Employers will still be liable to manual compliance checks on the accuracy of the data they submit on their RTI returns. The consultation does however raise the possibility that HMRC may look to charge late filing and late payment penalties in a single penalty notice at the same time.

As a result of what HMRC describes as the ‘quick and easy’ means of reporting RTI automatically because of its integration with payroll software as part of the payroll process itself, HMRC have made clear that the penalties for not reporting RTI will be automated. Employers showing on HMRC’s systems as having not submitted an RTI return will be issued automatically with a penalty for failing to report RTI. Penalties for late payment of PAYE are also automated.

It appears likely HMRC will press ahead with a penalty regime from the beginning of RTI as a result of the scale of change HMRC needs to achieve in employer payroll behaviour in such a short time scale. The introduction of Universal Credit in October 2013, which relies on the smooth implementation of RTI, leaves very little time available to HMRC to bring all employers into RTI. A maximum period of just 6 months, excluding the low overall numbers of employers involved in HMRC’s RTI pilot. As the HMRC consultation document makes clear: “RTI obligations will be reinforced by penalties, which are designed to encourage compliance”.

HMRC has indicated that it does not intend to move away from a fixed penalty of £100, which is the amount of most existing HMRC late filing penalties, incurred as soon as a return is late, particularly if it adopts an RTI late filing penalty based on one penalty per month. Although HMRC have announced they will confirm RTI penalties in advance of April 2013, it appears the final penalty regime will broadly follow the lines set out in the consultation.

The consultation document confirms that RTI reporting penalties will be subject to appeal, in line with all HMRC penalties, but does not suggest grounds on which an employer might reasonably do so.

HMRC recognises there is a balance to be struck between fairness and ensuring compliance, particularly with its commitment to automate penalties, but “aims to reach an equitable balance between [these] conflicting elements in the most effective way.”

The Chartered Institute of Taxation is calling for HMRC to defer RTI penalties for the first full year of RTI’s operation.

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