HM Revenue & Custom’s introduction of a requirement to support Real Time Information within the PAYE system from October 2013 is likely to have a negative impact on businesses across the UK, Straughans tax director Mike Fleming told our sister site, www.AccountingWeb.co.uk.
The government department is presenting the PAYE overhaul as a positive move, implemented for the benefit of employers and employees alike. But both should be aware that, not only is the new system likely to work to their detriment, but it is being driven by an additional agenda imposed by the Department for Work and Pensions.
HMRC claims that the introduction of RTI will reduce the likelihood of the PAYE-generated tax code errors that have plagued the National Insurance and PAYE system since it was established in 2009.
These errors often arise because extra sources of employee income only come to light after the Annual Employer Return has been completed, resulting in the allocation of an incorrect tax code to employees which, in some cases, takes years to rectify.
The idea behind RTI is to ensure that people are paying the right tax, at the right time. So far, so good. But it doesn’t take long for the cracks in the Revenue’s proposal to start showing.
HMRC claims that RTI will enable it to obtain accurate information every time somebody is paid, whether on a weekly, fortnightly or monthly basis. While this is not wholly bad news, the sheer frequency with which the information must be sent through to the Revenue could prove hugely time-consuming and disruptive to business for employers.
RTI may help to streamline HMRC’s systems, but it could wreak havoc for SMEs in particular.
In addition, there is also a hidden agenda that HMRC is keeping under wraps. A significant amount of the information requested will be pumped into government activities that bear no direct relation to PAYE.
The Department for Work and Pensions, for example, will use the information in order to introduce a Universal Credit System to replace the current benefits structure. It is the DWP’s need for certain information – which RTI will provide – by October 2013 that is driving an unrealistically tight timescale for introduction.
The real agenda
While a pilot involving volunteer employers (which includes HMRC itself) will be set in motion from April this year, this leaves very little time for any adjustments to be made before the system becomes mandatory in 2013.
Concerns about the real agenda behind the introduction of RTI are twofold: firstly, that the Revenue is being rushed into implementing changes that may have serious implications for employers across the UK because of an objective set by an entirely different arm of government. Secondly, that the government may use RTI as a means of getting employers to harvest information for them on an ongoing basis.
Employers will be expected to carry out passport identity checks on their employees at the same time and to update HMRC with the information, something that again appears as if it should be managed by Border Control.
It seems that employers, especially those running small to medium businesses, will be made to work harder to provide information that is essentially making the work of government researchers easier. If information is required for a new initiative, the onus should be on government, rather than employers, to do the groundwork.
Aside from concerns about the extra time that employers are going to have to spend submitting information to the Revenue about their personnel and the frequency with which they will be required to do so, we can expect widespread systemic errors when RTI is introduced, based on HMRC’s track record.
We all remember the problems when PAYE applications were introduced. It is hugely optimistic to expect the software that HMRC is having developed to add to its ‘Basic PAYE Tools’ package to work first time.
Employers have been voicing their disquietude about the introduction of RTI since consultations started, but HMRC appears to be steamrollering the process through nonetheless. At the very least, the department needs to put suitable training and adequate support in place before its introduction to ensure that businesses across the UK do not become casualties.
RTI looks like the ultimate cost-cutting exercise, neatly requiring employers to do the Revenue’s work for it. One can only hope that HMRC will prove this statement wrong.
Mike Fleming heads up the taxation services unit of chartered accountants and tax advisory firm, Straughans.
The view of a pilot participant
Enrico Liverani of DCS Payroll Agency, one of the businesses taking part in the RTI pilot from April this year, said: “Further issues will surely arise from the proposed scrapping of the P45 for the nebulous ‘leavers’ statement’. In my opinion, this lack of clarity will cause more error and confusion than the current system creates.
"The P45 is universally recognised by both employers and employees. It works because both the information and the format are mandatory. The introduction of a separate leavers’ statement of indeterminate format can only lead to confusion for all.
"The vast majority of micro and SME businesses do not employ professional payroll staff. It is unreasonable to expect people to extract the correct information from what will be a host of different-looking forms.
“It has been suggested that final payslips could be used in place of the P45. I would argue that this would create a huge margin for error, especially for non-professional payroll operators in deciphering the various totals listed on the pay slip. For example, gross pay, taxable gross and pensionable gross are all listed.
"I believe that RTI will create extra work for employers, who will be required to decipher information presented to them in a format not designed for the purpose. We, as a payroll agency, are unconvinced that RTI is a positive thing for employers.
"We don’t understand how removing what the Revenue terms the ‘onerous’ job of submitting an Annual Return or P45 (which is today an automatic job generated from payroll software) and replacing it with the constant burden of having to submit RTI, in some cases up to 75 or 80 times a year, is going to improve things for employers.”
