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RTI - Monthly returns sent quarterly in advance

We have some clients who pay their staff monthly but we process the payroll quarterly in advance

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We have some clients who pay their directors monthly but we process the payroll quarterly in advance and have been in the habit of submitting three RTI reports covering those months at the same time. This complies with HMRC's guidance about on or before filings and these have always been accepted and penalties have never been charged. However, we have just read the report of the FTT case Quayviews Ltd v Revenue and Customs Commissioners [2022] UKFTT 190 (TC) and were surprised to find that in fact the legislation (S6C(1) Sch 55 FA 2009) requires RTI returns to be made "during" the tax month for which the payment relates. The taxpayer's penalty appeal in that case was successful but only because of a reasonable excuse (due to HMRC guidance not spelling out that there is a start rule as well as an on or before rule). So, now we are aware, it seems that we shall have to submit RTIs every month from now on to protect our clients from potential penalties. Just thought I would mention it in case anyone else did not know this.

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By Hugo Fair
01st Jul 2022 13:49

Not read the FTT case you reference, but you've been really 'lucky' if your batches of FPSs "have always been accepted."

Irrespective of the legal position (and despite the FPS containing a data item for Tax Week Number or Tax Month Number), HMRC's systems are unreliable when faced with what you are sending ... and is quite capable of treating all 3 files as being for the same Tax Month.
Even worse, if it does that then it will assume that the 2nd one it reads overwrites the values in the 1st one it processed (and so on) ... despite that order not necessarily being the order of the months that you are reporting!

It also raises the likelihood that (due to incorrect processing by HMRC) the individual appears to have missing pay in some months and really high pay in others ... which as well as bu88ering up the Tax and NICs, won't help any employee on UCs.

In other words, forget the penalties angle ... you should only submit an FPS within the appropriate 'window' for the relevant tax week or month (for loads of reasons)!

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By Paul Crowley
01st Jul 2022 14:10

Never heard of or seen that idea.
Fairly certain that it would cause problems with ordinary employees.

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By Kevin Kavanagh
01st Jul 2022 14:12

Hugo helpfully summarises all the 'legal' reasons for avoiding this practice. But of course there are 'practical' ones as well - how do you deal with the director(s) wanting to change the amount, or stopping trading, or taking on someone else. Any of these and others will cause you much more work than the trivial effort of switching to monthly returns.

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Replying to Kevkava:
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By bendybod
07th Jul 2022 11:07

Or a global pandemic and furlough pay happening!

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By tom123
01st Jul 2022 14:45

"Little and often" is our motto in this office.

I know we are not in practice, but, sometimes what can seem like a time saving approach - as if we are automatons, is actually harder to do.

There is a risk of getting out of sequence and all sorts..or duplication.

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Replying to tom123:
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By Paul Crowley
01st Jul 2022 14:51

I agree
The CIS subcontractor scheme gives the oppotunity to ignore filings for 6 months
Penalty on month 7 if you forget

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By Paul Crowley
01st Jul 2022 14:56

https://www.rossmartin.co.uk/sme-tax-news/6331-ftt-cancels-penalties-for...

The excuse was; nobody told us what the law was.

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RLI
By lionofludesch
01st Jul 2022 17:54

Jeez - is it such a hardship to click a button once a month ?

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By Whatisname
01st Jul 2022 18:37

When working (now gratefully retired!) always, always sent in RTI’s monthly (or weekly). Never thought about doing it any other way…

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By fawltybasil2575
01st Jul 2022 23:23

May I swim against the tide.

This is the legislation at issue:-

https://www.legislation.gov.uk/ukpga/2009/10/schedule/55

Scrolling down to the section, one sees:-

“6C(1)If P fails during a tax month to make a return on or before the filing date, P is liable to a penalty under this paragraph in respect of that month”.

Frankly, in intending no offence to the FTT, and all commentators apparently in agreement with HMRC and the FTT, I disagree.

Firstly, the key IMHO is the word “fails”. If one has already done an RTi submission, in a PREVIOUS period, then one has hardly “failed” (an incongruous use of that word) to submit that return in the period itself.

Secondly, the way often (as in this case) to decide what the legislation INTENDS is to consider an extreme example: hence if, for example, one wishes (and I can think of countless reasons why one might wish to do so) to pay an employee on (say) 6 August 2022, then, if one adopts the FTT’s viewpoint, then one IS COMPELLED to make the RTi submission on 6 August 2022 only, even if it is wholly inconvenient to do so (ie where more convenient submission dates are the few days, or weeks, prior to 6 August 2022).

Such would be a ludicrous requirement therefore, and I must respectfully point out therefore that a purposive construction MUST be placed on the legislation on those grounds also.

Basil.

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Replying to fawltybasil2575:
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By Hugo Fair
01st Jul 2022 23:44

Not sure against which tide you think you're swimming, Basil.

I opened my post with "Irrespective of the legal position (and despite the FPS containing a data item for Tax Week Number or Tax Month Number), HMRC's systems are unreliable .." before going on to explain the practical ructions that ensue if you do what OP set out.

My point is that even if you ignore HMRC guidance (and why shouldn't you given their light adherence to the letter of the law) plus all the actual legislation (as kindly referenced by yourself) ... the real world of practicalities is how HMRC's systems process your (in this case FPS) submissions.
Due to the incomplete redesign of their systems when RTI was introduced, this processing is not a one-step action but a series of post-submission processes that trigger other processes before updating a range of non-integrated databases.

So the dangers of doing submissions per OP is that it will royally mess (often in unpredictable ways) with those systems - not just within HMRC but also at DWP and SLC et al. THAT is why HMRC's guidance exists ... and why, in this instance at least, it is sensible to follow it.

Whether it is legally compliant and what impact that may have on receiving and/or repudiating any penalties is interesting - but, given the practical risks, OP may not wish to explore those aspects other than theoretically.

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Replying to Hugo Fair:
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By richard thomas
02nd Jul 2022 10:51

I agree with both Basil and Hugo here, as they are talking about different things.

The first and important point to make about the Schedule 55 penalties, including that paragraph 6C ones is that the operative provision is paragraph 1(1) in relation to all late filing penalties.

“(1) A penalty is payable by a person (“P”) where P fails to make or deliver a return, or to deliver any other document, specified in the Table below on or before the filing date.

RTI returns are in the table (Item 4 as amended by FA 2013). That is what triggers a penalty, and if the return was not late, no penalty can be charged.

It's noteworthy that regulation 67I of the PAYE regulations also says:

(1) For the purposes of paragraph 6C of Schedule 55 to the Finance Act 2009 (amount of penalty: real time information for PAYE), a Real Time Information employer which fails to deliver a return falling within item 4 in the Table in paragraph 1 of that Schedule in accordance with—

is liable to a penalty of the amount set out in paragraph (2).

without any reference to “during a tax month”.

For paragraph 1(1) to be disapplied in such a radical way as the decision does would require, in my opinion, much more obvious words, such as a “without prejudice to”, “subject to” or “despite”, which are not present in either paragraph 1(1) or 6C.

I wondered whether the “during the month” words were put in to deal with the “first month” exception in paragraph 6C(4), but I don’t think even such a paranoid organisation as HMRC would think that anyone would deliberately try to avoid penalties for Months 2 – 12 by making the returns in advance in Month 1. In cases other than very simple ones they would not have the information.

I have looked at the CIS rules in paragraphs 8 to 13 and regulation 4 of the CIS Regulations. There the return is only made after the tax month and must show payments made during the month, so there cannot really be an anticipatory return where payments are made. But nil returns are required and could be made anticipating that without any problem of the type in the decision.

Basil’s point about payments on the first few days of a month is a good one.

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By ireallyshouldknowthisbut
02nd Jul 2022 09:48

Irrespective of the rules, can you not batch file with the rest of your runs?

We have 75+ director only payrolls all set up at the start of the year (and amended if required) which are filed in about 10 minutes with a batch file once a month.

Payroll Manager.

Used to file them annually but got bit on the backside by the Covid rules so now done monthly for the 2 hours or so it takes over the course of the year.

Seems more sensible as things change, staff leave etc etc.

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By fawltybasil2575
02nd Jul 2022 11:57

@ Hugo (your post at 23.44 yesterday).

The “tide” to which I referred in my last post was the tide of opinion that one should not make an RTi submission in a “prior month”. Effectively there are two (different) camps expressing that “opinion”, ie:-

(i) The “LEGISLATION” camp, ie The FTT, HMRC and (per the link in the post by Paul at 14.56 yesterday) Ross Martin: that camp’s grounds are that the LEGISLATION states that such “prior month” submissions are in breach of that legislation; and

(ii) The “PRACTICAL PROBLEMS” camp. Most posters above draw attention to the potential practical problems of “prior month” submissions.

Having IMHO, re (i), in my last post expressed my opinion that the LEGISLATION does NOT support the view that a “prior month” submission is in breach of the legislation, may I (fully respecting the views of eminent posters above) advise that, re (ii), I personally have experienced no practical problems whatever from making “prior month” submissions.

I have, over several years, for different reasons, made many “en bloc” RTi submissions (for 3 and 6 month periods) without any adverse consequences, whilst being aware throughout of the necessary remedial action which would be required if it exceptionally became necessary to amend any submission (I cannot recall any occasion where such remedial action was later necessary).

The key point, in my last post, was that IMHO the FTT have been fortuitous in the WAY in which they reached their decision to overturn the Penalty: they have come to that correct decision however for the WRONG REASON (their grounds being that the HMRC guidance is unclear, whereas they should have stated that the LEGISLATION was not breached at all). Frankly, I do NOT believe that the HMRC guidance was (and still is) unclear at all: it rightly does not state that “prior month” submissions are in breach of the legislation.

[Indeed, sadly I believe that HMRC probably knew, before the Quayviews Ltd FTT case, that their stance was wrong, but adopted a disingenuous approach in pretending to believe they had a good case. Such is the parlous state of HMRC ethical standards nowadays: I readily call to mind a case where a senior Inland Revenue officer, many years ago, was adamant in expressing their opinion (in seeking to avoid making a Tax Repayment to a client) that the Repayment application was invalid. When I ultimately maintained my stance, he relented with the words “one has to maintain the party line” (a euphemistic admission that they will try to avoid their responsibilities by resorting to blatant untruths) – that was over 30 years ago, and HMRC ethical standards have declined further since that time].

Basil.

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Replying to fawltybasil2575:
RLI
By lionofludesch
02nd Jul 2022 12:04

fawltybasil2575 wrote:

@ Hugo (your post at 23.44 yesterday).

The “tide” to which I referred in my last post was the tide of opinion that one should not make an RTi submission in a “prior month”. Effectively there are two (different) camps expressing that “opinion”, ie:-

(i) The “LEGISLATION” camp, ie The FTT, HMRC and (per the link in the post by Paul at 14.56 yesterday) Ross Martin: that camp’s grounds are that the LEGISLATION states that such “prior month” submissions are in breach of that legislation; and

(ii) The “PRACTICAL PROBLEMS” camp. Most posters above draw attention to the potential practical problems of “prior month” submissions.

Having IMHO, re (i), in my last post expressed my opinion that the LEGISLATION does NOT support the view that a “prior month” submission is in breach of the legislation, may I (fully respecting the views of eminent posters above) advise that, re (ii), I personally have experienced no practical problems whatever from making “prior month” submissions.

I have, over several years, for different reasons, made many “en bloc” RTi submissions (for 3 and 6 month periods) without any adverse consequences, whilst being aware throughout of the necessary remedial action which would be required if it exceptionally became necessary to amend any submission (I cannot recall any occasion where such remedial action was later necessary).

The key point, in my last post, was that IMHO the FTT have been fortuitous in the WAY in which they reached their decision to overturn the Penalty: they have come to that correct decision however for the WRONG REASON (their grounds being that the HMRC guidance is unclear, whereas they should have stated that the LEGISLATION was not breached at all). Frankly, I do NOT believe that the HMRC guidance was (and still is) unclear at all: it rightly does not state that “prior month” submissions are in breach of the legislation.

[Indeed, sadly I believe that HMRC probably knew, before the Quayviews Ltd FTT case, that their stance was wrong, but adopted a disingenuous approach in pretending to believe they had a good case. Such is the parlous state of HMRC ethical standards nowadays: I readily call to mind a case where a senior Inland Revenue officer, many years ago, was adamant in expressing their opinion (in seeking to avoid making a Tax Repayment to a client) that the Repayment application was invalid. When I ultimately maintained my stance, he relented with the words “one has to maintain the party line” (a euphemistic admission that they will try to avoid their responsibilities by resorting to blatant untruths) – that was over 30 years ago, and HMRC ethical standards have declined further since that time].

Basil.

I agree with you, Basil, but I still wouldn't submit before the beginning of the tax month as I have no wish to make a rod for my own back.

Much better to avoid the accusation than to spend time defending your position.

Ironically, if a fella is to be paid on 6th of the month, it seems that you're far less likely to be served a penalty notice if you submit the RTI a day late than a day early.

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By fawltybasil2575
02nd Jul 2022 16:52

May I invite all to have a look at the FTT case report, here:-

QUAYVIEWS LIMITED Her Majesty's Revenue & Customs (INCOME TAX - RTI returns –late filing penalties - returns filed before the relevant tax months) [2022] UKFTT 190 (TC) (20 June 2022) (bailii.org)

Note the alarming “about turn” tactics of HMRC, ie:-

Per (4):-
“Their (HMRC's) Statement of Case maintained that HMRC had not received the RTI returns for these periods AT ALL (emphasis added)”;

However, in stark contrast, per (5):-

“In the hearing, HMRC agreed that the returns HAD BEEN FILED (emphasis added) on 4 September 2020”,

but then HMRC sought to defend their position by a bizarre interpretation of (S6C(1) Sch 55 FA 2009.

Self-evidently, HMRC must have realised that the allegation, in their Statement of Case, that returns had not been submitted at all, was UNTRUE, but (in desperation, and paying no heed to their obligations to treat taxpayers honestly and fairly) instead of apologising to the appellant and conceding defeat, they appointed Mrs. Edley, at “very short notice”, to the Tribunal case, and got her to admit that the returns had been submitted after all, ie that the Statement of Case was fallacious, foisting on her the task of putting forward a completely different excuse for continuing the case (in the knowledge that she could not personally be taken to task, by the Tribunal, for the unacceptable conduct of others within HMRC). This is clear from (28) here (the euphemisms in the second part of the extract are obvious):-

”The Tribunal is grateful to Mrs Edley for taking over HMRC’s case at very short notice and her assistance to the panel; any comments with regard to the Statement of Case and correspondence must not be regarded as a reflection on her”.

As I have said in my previous posts, and with respect to the Tribunal members, the “Decision” produced the right answer, but for the entirely wrong reason (ie they disappointingly “swallowed” the last minute HMRC “about turn story”).

The unfortunate result of the Decision is that HMRC might seek to refer to it (albeit it is not binding) in other cases: if they have any ethical standards, they will NOT accept the recommendation (of the Tribunal) to amend its guidance in the way the Tribunal recommended. It would be a straightforward matter to amend the legislation wording to ensure that it cannot be so badly misinterpreted in future.

With due apology for some polemics in my above comments, and whilst I cannot by definition PROVE that my interpretation of all the events (re the HMRC “tactics”) is 100% correct, one develops a “nose”, over the years, for such unacceptable HMRC ethical standards.

Basil.

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Replying to fawltybasil2575:
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By richard thomas
04th Jul 2022 07:14

Sorry if this is a duplicate but I sent a reply from the depths of the Victoria Line which appears at my end to have disappeared.

I said there that I agreed with everything Basil says, though not to forget Farthings Steak House.

The conduct in the Quayview case is sadly reminiscent of that in one of my cases, Gekko & Co Ltd v HMRC [2017] UKFTT 586 (TC). The meat of the case as far as Revenue conduct is concerned is in the part at the end on costs which I awarded to the appellant.

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By CJaneH
04th Jul 2022 10:57

RTI = Real Time Initiative

Why not go with name? The person preparing the payroll has no Crystal Ball as to what will happen in the business.

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Replying to CJaneH:
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By Hugo Fair
04th Jul 2022 18:22

Actually the I stands for Information ... which of course makes your point even stronger!

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By May bee
06th Jul 2022 09:44

Annual payroll for me for all directors. PITA re furlough but couldn't be foreseen.

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By Keeleklogger
06th Jul 2022 10:22

When I was working (now retired) we always submitted director payrolls quarterly in advance since the start of RTI never had any issues. At the start of the new tax year we would increase the basic salary, change the date to 30 April, update and submit, 31 May update and submit, 30 June update and submit put the file away for 3 months. This helped to keep the costs down fir the client.

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By Ammie
06th Jul 2022 10:48

Thank you OP. I wasn't aware of that.

Rightly or wrongly I have always prepared payroll quarterly in advance but only for those whose salary never changes, other than annually. Never had a problem for me or the client and it works well.

Based on the information it would appear to be a risk, one I will take, certainly in the short term.

Compared to the glitches we are about to face with MTD I doubt HMRC will bother much with the micro payroll clients I deal with. Irrespective of the legislation, how is advising in advance a problem, particularly as HMRC require being advised of changes in circumstances, often in advance, and in many other areas and often issue notices to us up to a year ahead! I appreciate that the circumstances are not all the same.

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