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Finance Bill 13: Changes to RTI penalty regime

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13th Dec 2012
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Draft Finance Bill 2013 clauses set out new RTI and PAYE late payment filing penalties that won’t come into effect until April 2014.

However, penalties for filing accuracy will come into force as soon as the Finance Bill receives Royal Assent.

Earlier this month, tax bodies were dismayed at the government’s determination to levy in such penalties and concerned that they would have an impact on small businesses.

The Finance Bill amendments appear to give more leeway to those who take time getting used to the new PAYE filing system.

CIOT's technical director Tina Riches welcomed the additional year until the late filing penalties come into effect, but warned that other changes would make it difficult for small businesses. 

"A relaxation of some of the penalties is really welcome, but the penalties for incorrect returns, which will come into force straight away, don't give small businesses the time they need to adjust to the system. We've been saying, tell clients to file returns accurately, rather than on time, which actually defeats the purpose of RTI," she said. 

She added: "However, the package as a whole will give businesses time to come to terms with the system in the first year and identify problems to HMRC."

The government said the legislation will encourage compliance with RTI and ensure the non-compliant don't gain a significant advantage.

The new law (page A217 in overview of legislation document) includes new late filing penalties for RTI returns, changes to current late payment penalties to ensure they can be charged in-year. The size of the late filing penalties will be based on the size of the PAYE scheme, rather than filing defaults and will include one unpenalised default, with the first filing default every 12 months not attracting a penalty.

For penalties relating to inaccuracies, the law be amended to allow a tax year to be treated as a tax period under Schedule 24 to Finance Act 2007. In its commentary on the measure, HMRC argued the change would reduce the number of separate penalty assessments issued when errors are found.

Following consultation, other changes to the penalties and late filing regime include: 

  • one penalty per month, even if the employer defaults more than once
  • charging penalties quarterly 
  • considering an easement for new employers who find filing their first returns difficult due to delays registering with HMRC 
  • legislating for an additional tax-geared penalty to apply for returns outstanding more than three months
  • considering an assessing tolerance where a small difference in amounts paid for a tax period compared to amount due to be paid as reported on RTI returns will not trigger a payment default
  • applying interest to late RTI penalties.
According to the documentation, work on secondary law for the new late filing penalties is continuing and will be published for consultation next year. Visit the HMRC website for more information on the consultation and key changes made to the late filing system. 

Replies (11)

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By allanr
14th Dec 2012 11:23

Mendacity

Just so long as none of the publicity contains any tosh about helping small businesses to keep current and save costs, and they admint that this is a cash-flow enhancing, revenue raising initiative that will burden small businesses in particular, then so be it.  But please, let's not pretend it is anything else.

Thanks (6)
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By Ian McTernan CTA
14th Dec 2012 12:45

Who benefits?

I can't see who benefits from this-HMRC will have spent somewhere in the region of £380m on the system, then we can anticipate teething problems and lack of suitable trained staff leading to a bottleneck on the 'helplines' when literally thousands of employers try to call to sort out problems they have with the system.

Are you late if you can't get your query answered as the message cuts you off (no record of your call at their end), and how long exactly are you expected to waste out of your valuable time which should be spent keeping the company running to satisfy HMRC's latest whim.

HMRC doesn't have the staff to handle the information on RTI so basically it's a massive exercise in shifting work from HMRC to the employers and then fining and penalising them when they can't use it and can't get any help on it.

I can see yet another barrier being created before new businesses take on any employees and yet more cash payments, 'self employed' and one man service companies popping up.

If I was a new business thinking of taking on it's first employee this, along with employer's NIC and all the fines and penalties I might have to pay would certainly put me off expanding in that fashion.

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RLI
By lionofludesch
14th Dec 2012 13:00

Surely it's an extra tax ?

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By James RQL
14th Dec 2012 13:07

RTI

This measure will kill off direct employment by very small companies with just a few people.

Small companies do not have such systems in place or the means or funds to install them and the additional costs of using a bookeeper or RTI payment service to avoid penalties will add to overheads. And all this is to ensure the Treasury receives its NI and tax due from the larger employers who have used other means to obtain flexibility - witnesss Starbucks!

The result is that we will return to the days of cash in hand employment or the creration of self-employment situations. A two or three person company should not be the target of these measures as by their very nature the employer has to be flexible and so do the employees.

A disappointing and rather draconian measure that will affect many thousands.

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RLI
By lionofludesch
14th Dec 2012 13:49

Cynical

The whole penalty regime is about raising money without being able to criticise the Government. They can just say "you needn't pay - just file all your returns on time", knowing full well that someone, somewhere along the line will fall by the wayside.

Wish I had the taxman's job - less work and more money for doing it.

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By stevie63
14th Dec 2012 14:05

I have a client who operates a mobile bar.  Staff are paid at 2am on Sunday mornings and we look after payroll.  Do I have to set my alarm each Saturday night to deal with this.  HMRC seem to suggest so.  Does anyone else have similar impractical cases?

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Replying to Ruddles:
Susan Ball RSM
By Susan Ball
14th Dec 2012 15:33

Stevie63

I believe you will have to operate on the earliest of:

the next ‘regular’ return the employer is required to send; orseven days following the day on which the payment is made

See http://www.hmrc.gov.uk/rti/on-or-before.pdf

 

 

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RLI
By lionofludesch
14th Dec 2012 14:41

Unholy Rush

I don't see why there's such a hurry.

 

Monthly is adequate, surely ?

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By RichardZ
14th Dec 2012 16:51

RTI - who is it really for?

The cynic in me says that RTI is being driven by the Dept of Work & Pensions.

Unfortunately HMRC have to police it. Maybe they'll do a better job at this than they do policing the minimum wage legislation.

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By P2
14th Dec 2012 17:16

Does anyone else have similar impractical cases?

A farm in a rural area with no broadband connection pays farmhands on Friday lunchtime - has done so for centuries probably.  Details are sent to the book-keeper the following week.  She processes the payroll and pays HMRC on time by tjhe due date (under the current system).

Worried that there is no way of avoiding penalties under the proposed system.

Happy weekend to all,

P2

 

 

 

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By johnjenkins
17th Dec 2012 11:35

I agree

that many employers are going to be put off, and the way things are going I also see a dramatic rise in Limited Companies. The only challenge being IR35 and we all know where that is heading.

How many Accountants will advise "some" clients not to employ staff because of these situations?

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