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MPs want RTI delay and central deductions

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13th Jul 2012
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A group of MPs has fanned the flames of controversy surrounding real time information (RTI) reporting for PAYE by calling for a delay until 2015 to give HMRC a chance to implement centralised deductions. 

With HMRC reporting good progress in its RTI pilot scheme, the All-Party Parliamentary Taxation Group (APPTG) published a report entitled ‘PAYE at the Crossroads’ that echoed previous fears from the Commons Public Accounts Committee about the RTI project's tight timescale. The October 2013 go-live date for all companies has been driven by the policy deadline for Universal Credits rather than business needs, the MPs argued, adding that the effect on the new benefits system would not be substantial if HMRC were to delay the migration.

The report rejected suggestions that PAYE and instead positioned RTI as the beginning of a long process of modernisation. AccountingWEB members who remember the initial consultation process around RTI will recall the outrage and incredulity that greeted the phase two proposal for HMRC to process tax calculations centrally, and deduct tax from the sums paid out to employees.

The APPTG would prefer to see HMRC working towards what they called its "preferred strategic solution" to deliver both real time data feeds and automatic reconciliation between deducted PAYE and benefit entitlement. could not be done within the timescale HMRC introduced an Interim Solution, bringing with it an extension to electronic data interchange until 2016. Though welcome, the Interim Solution does not guarantee accurate real time data. However, HMRC is still working towards its preferred Strategic Solution which does bring that guarantee.

The report’s author, Jamie Black, argued that centralised deductions would significantly reduce the administrative burden on business and would bring benefits to a number of government departments. He had obviously not read AccountingWEB's response to the original RTI consultation document.

Responding to the whitepaper, KPMG commented that the chance of a delay was “slim to non-existent”. KPMG director Steve Wade said: “The last thing businesses should do is assume that they will get more time and thus put their planning on hold. Our understanding is that HMRC remains determined to introduce RTI in April 2013 [for larger busiensses] as originally planned.”

Wade said it was the biggest change to the PAYE system since it was introduced in 1944 and will represent a significant payroll challenge to many employers.

However, he added: “Fortunately there is a pilot underway and we believe that the majority of larger businesses have started to plan for RTI. Starting to plan is not always the same as taking concrete steps towards implementation however and most businesses have a way to go in order to be prepared for RTI’s introduction.”

HMRC, meanwhile, reported that a further 1,300 employers will join the RTI pilot between now and September, confirming that the planned implementation is on track and going well.

HMRC’s Stephen Banyard said they’ve now received more than 1.7m individual records from 338 PAYE schemes.

“We are also seeing external confidence in the pilot and we’ve responded to that by offering more large employers, payroll bureaux, new employers and software developers the opportunity to join the RTI pilot or to expand existing involvement in advance of the launch date in April 2013,” the minister said.

However accountants are concerned that when RTI comes into force next year small, owner-managed companies could face new hazards. As reported earlier this week, AccountingWEB members are concerned about how the mechanics of RTI arrangements will work for one-man companies that pay low salaries and large dividends.

Accounting franchise TaxAssist is also running an RTI survey for small business owners to inform HMRC about RTI concerns and potential teething problems.

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Replies (26)

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
13th Jul 2012 18:19

CIPP comment

Comments sent in from CIPP senior policy & research office Helen Hargreaves:

“The CIPP strongly opposes a move to Centralised Deductions, believing that it would be wiser to evaluate the effects that introducing RTI, and the benefits that brings first before considering any more radical changes.

“The report recommends that the Cabinet Office establishes a working group to look at the benefits of both the Strategic Solution and Centralised Deductions across government. 

“The CIPP welcomes this, as the costs needed to bring about such a radical move need to be considered alongside any potential benefits it would bring. We hope that we will be given the opportunity to feed into this working group.”

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By kenfrost
14th Jul 2012 11:47

Barnyard is retiring

Q: Why is Stephen Barnyard (or is it Banyard?;)) so upbeat and effusive about RTI?

A: He is retiring soon!

Aha!

He could of course come back as a paid consultant, if things don't run smoothly;)

http://hmrcisshite.blogspot.co.uk/2012/07/bon-voyage-stephen-banyard.html

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By frustratedwithhmrc
15th Jul 2012 10:24

Centralized Deductions

If we are going to have centralized deductions then lets have it on an opt in and opt out basis.

This allows each employer to decide whether they wish to allow the state to undertake the deductions instead of them doing the calculations manually, but more importantly all of the bureaucracy that goes along with PAYE, NI, Tax Credits, Maternity, Student Loans, etc. must go with it as well as the filing of other associated annual paperwork such as P14's.

This means that responsibility for processing errors MUST reside with HMRC alone

This would mean that a great many of the states imposts on small employers would be removed and would substantially release entrepreneurs from working as unpaid tax collectors to generating profits and running their businesses.

Obviously, some small employers would still prefer to keep their tax affairs out of HMRC's "Pocket Money Machine" and they should be allowed to do so (by not opting in). There should be no penalty or poor treatment by HMRC if they choose to do this.

There should also be the ability to exit the RTI system and return control to the employer if they become unhappy with the situation or too many problems arise. This opt out MUST not be subject to the discretion of HMRC officials.

All of the above would at least temper the worst excesses of an RTI implementation, which I confidently predict will work acceptably well for large employers and be a miserable failure for Small and Medium-sized Enterprises.

However, it is clear that HMRC is ignoring the voices of reason in preference to fulfilling the diktat's of the political masters in Westminster.

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By Peter Tucker
15th Jul 2012 17:49

The APPG Taxation Group Report

More fascinating extracts from the Report?

http://www.appgtaxation.org/PAYE_at_the_Crossroads.pdf 

RTI is important because it practically demonstrates the importance of the PAYE system for policy delivery across Government

Sorry but is PAYE not a system to deduct the correct amount of Income Tax and NIC for each Employee?

The APPTG lays out a vision for a new model for PAYE – Centralised Deductions. Under Centralised Deductions, employers would pay their employees in gross and have the PAYE calculation performed by a centralised calculator within the payments system

“Centralised calculator within the payments system?”, What does Payroll software do? What is meant by the "payments system"? Shirley Knot VocaLink?

We argue that the benefits of RTI will not be recognised in full because HMRC is delivering RTI, through the Interim Solution, where HMRC can check, but not guarantee real time accurate data.

HMRC can not guarantee real time accurate data implies Employers are not properly deducting the Income Tax and NIC due under PAYE legislation, does it not?

Through RTI and its facilitation of Universal Credit, it is evident that PAYE is a cross-governmental issue.

The statement that PAYE is a “cross-governmental issue” is interesting?

The APPTG has previously reported how problems with the operation of the PAYE system have led to the miscalculation of income tax for millions of people.

The “miscalculation of Income Tax” was not as a result of the failure of Payroll software but rather an issue where HMRC had not issued the appropriate PAYE Tax Code to the appropriate Employer.

HMRC have outsourced much of the operation of PAYE to employers

Calling the operation of PAYE and Payroll software an outsourced operation would seem strange?

Well that's me up to Page 13 of 59, so on we go! Who knows, there may be more interesting things?

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
16th Jul 2012 09:59

Further RTI news this week

 

AccountingWEB's tax podcaster Anne Fairpo also struck a sceptical note about the APPTG report in this week's edition (16 July). .

There will more RTI coverage this week as DWP and Treasury ministers have scheduled a press conference on Tuesday morning. I'll be there on behalf of AccountingWEB and will put some of the points raised about the MPs report to them. I'll post a new report in tax news later on the day.

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By Andrew Mann Keytime
16th Jul 2012 12:17

And of course the author of the report has an extensive background in tax and/or payroll....

 

 

 

"Jamie Black has led the APPTG’s research project on the PAYE system culminating in the report ‘PAYE at the Crossroads’. Previously, he has worked for the Foundation for Defense of Democracies in Washington DC and the Conservative Party.  Jamie  graduated  with an  MPhil in Management  from  the University of Cambridge (2010-11), having previously graduated with a First-class BA Honours degree in Politics from the University of Nottingham (2007-10)."     oh, actually he doesn't....goodness me that IS surprising.....  

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By lh3f9764bg1g
16th Jul 2012 13:20

Authorisation

Does anybody know whether any additional authority (from the client) is required . . . . . or whether the FBI2's and 64-8's already submitted are sufficient? I can't seem to see the answer to that anywhere and I'm worried that there's the potential for a dramatic crisis around the corner.

 

Chris.

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By carnmores
16th Jul 2012 13:54

and i still cant get my head around what happens

if the company has only got enough cash to pay the net wages, what happens then

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Locutus of Borg
By Locutus
16th Jul 2012 15:12

@carnmores

"if the company has only got enough cash to pay the net wages, what happens then"

They appoint an Insolvency Practitioner is probably the correct answer.

At the moment, when all other sources of funding have been exhausted (and quite often before!) less reputable employers start borrowing off the Taxman, in the gamble that it will all turn out right by the time the P35 is filed.  It's wrong, but it happens in the real world, however much they are warned not to do it.  The problem is that desperate people tend to do desperate things.

Once RTI and Centralised Deductions comes along, I expect it will actually encourage the Black Economy as more employers go "off grid" or decide from the start that most of the people working for them are really self employed, even when by any objective test they aren't

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By carnmores
16th Jul 2012 15:26

get real

loads of companies dont have enough to pay the paye nic at the same time as net wages

and as for irreputable , well!   they will simply lend their employees money or lay therm off to self employed status

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By BakerCrane
16th Jul 2012 15:42

Can we suggest that using a Contract Management company such as <mod - promo link removed> can remove the need for onerous payroll costs and charges? Makes sense to keep out of the loop.

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Replying to kamran37:
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By frustratedwithhmrc
16th Jul 2012 19:03

BLATANT ADVERTISING

BakerCrane wrote:
Can we suggest that using a Contract Management company such as www.touchstone.im can remove the need for onerous payroll costs and charges? Makes sense to keep out of the loop.

Given the relationship that exists between Baker Crane and Touchstone as referenced here (http://www.touchstone.im/employer.html), may I kindly suggest you go flog your wares somewhere else...

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Replying to nogammonsinanundoubledgame:
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By BakerCrane
16th Jul 2012 19:41

BLATANT ADVERTISING
Nothing wrong, in our opinion, of cross marketing or networking. If you don't like suggestions why are you a member of this site? Go keep your petty opinions to yourself and market them elsewhere.

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Replying to Portia Nina Levin:
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By frustratedwithhmrc
16th Jul 2012 20:36

BLATANT ADVERTISING

BakerCrane wrote:
Nothing wrong, in our opinion, of cross marketing or networking. If you don't like suggestions why are you a member of this site? Go keep your petty opinions to yourself and market them elsewhere.

Accounting Web is more than just a marketing channel, it is a community of like minded professionals who share the same concerns and try to help each other out.

My profile alone says everything about the commitment I make to this community, of which I have been a member for more than 2-years.

https://www.accountingweb.co.uk/user/168122

BakerCrane's profile does the same and for someone who has not been a member of this community for a single day as yet, this is hardly a sterling introduction. 

https://www.accountingweb.co.uk/user/198532

At least when members promote their own services, they generally do so directly, honestly and openly, typically because they have direct professional expertise / experience in an often obscure point of tax statutes, regulations or HMRC interpretation.

If you wish to advertise your services through Accounting Web, may I suggest you speak to Sift Media directly through the web page shown below.

https://www.accountingweb.co.uk/advertise-accountingwebcouk

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Replying to Portia Nina Levin:
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By carnmores
17th Jul 2012 16:06

well this subject has been aired many times before

its the way you disclose BC. but disclosure should be made its not petty at all

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By philfromleeds
16th Jul 2012 21:29

Police State

 

Centralized deductions does make a lot of sence especially when a tax payer has more than one job. Also I can see that it will be very dangerous to pay people on the side and it will get rid of the P46 loophole completely. As long as every paid employee is reported on the system. Employers also would appreciate the system if there are no costs to them and the banks also do not profit out of it. Benefit fraud will be dramatically cut. There will still be opportunities for people to be paid on the side but as long as the financial police spy, employers will be caught easily. The National Identity card will look infantile when compared to Centralized Deductions.

As long as the businessman gets a level playing field he can not really grumble.

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Replying to stratty:
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By frustratedwithhmrc
17th Jul 2012 04:10

There was me thinking this was about PAYE...

 

philfromleeds wrote:
There will still be opportunities for people to be paid on the side but as long as the financial police spy, employers will be caught easily. The National Identity card will look infantile when compared to Centralized Deductions.

I may be being naïve, but I thought the RTI implementation was to smooth PAYE issues and the implementation of Universal Credit. I never imagined it would be the pre-cursor to a police state. We're talking about HMRC, not the Stazi.

philfromleeds wrote:
Centralized deductions does make a lot of sence [sic] especially when a tax payer has more than one job. Also I can see that it will be very dangerous to pay people on the side and it will get rid of the P46 loophole completely.

Again, showing my innocence, what is the P46 Loophole?

 

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Euan's picture
By Euan MacLennan
17th Jul 2012 09:41

Yes - what is the P46 loophole?

If a P46 is filed in the absence of an incoming P45, the HMRC's records are updated.  The loophole is when neither a P45 nor a P46 is filed.

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Locutus of Borg
By Locutus
17th Jul 2012 09:41

Police State
I have always felt rather uncomfortable at the idea of centralised deductions and the idea that Big Brother tells you at the end of the month what pocket money you can have. HMRC have a poor record of implementing IT systems and I shudder to think what would happen if they were left in charge paying all employees across the country. Another problem for HMRC is that they are virtually uncontactacble by telephone for the ordinary man on the street. What happens if Big Brother pays the wrong amount or not at all?

I also think once HMRC get their hands on centralised deductions for PAYE they will want to extend it to other sources of income. Self employed building subcontractors certainly. Bank interest perhaps. What about payments made to personal service companies so that the "right" amount of tax can be taken by Big Brother's Magic Machine?

But I suppose HMRC will say something like "if you have nothing to hide then you have nothing to fear"

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By Peter Tucker
17th Jul 2012 11:34

RTI / Centralised Deduction / PAYE

Might be worth noting that PAYE is a simple process, which despite being introduced in the 1940's, calculates the Income Tax & NIC to be deducted from a given earned income. There are few who actually manually calculate the deductions ( in a similar fashion to the demise of log tables and the slide rule !! ) as the majority use some form of Payroll Software.

These deductions are ALWAYS accurate, according to the PAYE Code number applied, which is either the PAYE Code notified or authorised by HMRC or one dictated by the PAYE Legislation.

Where HMRC fail to notify the "correct" PAYE Code number to an Employer or authorise a PAYE Code in error, the Employee will NOT pay the correct amount of Income Tax. This is not the fault of PAYE, it is the fault of HMRC.

The major concern over Centralised Deductions is that it will NOT be HMRC who do the calculating and Deducting. A commercial organisation - VocaLink - is lobbying to undertake this operation, and presumably they will, being a commercial organisation, require payment for this service. We should note that Employers operate PAYE and remit payments to the Employee and HMRC at "No Cost" to the Public Purse, whereas a commercial organisation would be failing its shareholders if it were to undertake the same work for free.

RTI means reporting weekly or monthly, the earnings and deductions of each employee, a task which most Payroll software will undertake with ease.

Centralised Deductions means that someone gets an income stream from Joe Public.

PAYE means someone calculates what deductions to make in order to ensure that the annual Income Tax bill is settled.

Perhaps the APPG Report - "PAYE at the Crossroad" should have undertaken more research, rather than merely assuming that lobbyists were the fount of all knowledge?

 

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By North East Accountant
17th Jul 2012 12:24

Centralised Deductions

INSANITY!!!!

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By ringi
17th Jul 2012 13:02

Another option...

What about.

Each tax payer must choose a single “primary” bank account that is linked to their NI number.All payment by BAC etc must have a flag set to say if they are taxable.Taxable payment may only be made to someone’s primary bank account.BAC to understand NI numbers, to you can pay someone’s NI numberThe bank that operates each person’s primary bank account to do the tax calculations, as they will have a real time view of all taxable income of the person.

We then each choose who we trust to operate the tax rules by choosing the bank we use.

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By Peter Tucker
17th Jul 2012 13:08

Another Option !!
What about using some actual analysis on the subject?
Not everyone has a bank account, so the above seems to fall at the first "rule".
Taxable payments are presumably decided by the Employer, so why not continue with deducting PAYE as is current practice or is "ringi" a Shareholder?

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Replying to timothyvogel:
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By ringi
17th Jul 2012 13:22

Another Option !!

Peter Tucker wrote:
What about using some actual analysis on the subject? Not everyone has a bank account, so the above seems to fall at the first "rule". Taxable payments are presumably decided by the Employer, so why not continue with deducting PAYE as is current practice or is "ringi" a Shareholder?

Practically everyone will have to have some sort of bank account, just to be paid benefits soon so requiring a bank account is not a great issue.  

The problem with the employer doing the deductions is that the employer does not know about the other employment income someone gets.    This is a big issue for care staff that work var agents, as they can have 3 or 4 different employers each month!   Tax codes can never be updated quickly enough to cope.   Add in some pension income as well, given that a lot of pensioners are now doing part time work with variable hours each week, as well as more than one pension….

I was trying to get away from having to trust the HMRC to run a single central computer system.

 

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By donquixote34
18th Jul 2012 13:53

Big Brother

If RTI were only about Universal Credits and the odd coding error, then it would be logical to only apply RTI to claimants and more difficult PAYE cases, in the same way that student loans apply to specific people.   If not a step toward a Big Brother state, RTI is certainly a sledgehammer to crack a nut. 

Mr Gauke, when will you please stop pretending that this isn't a massively increased burden on micro-employers?   At the moment, a payroll clerk is only forced to be at his desk once a year at any point between 6th April and 19th May.  You are increasing this requirement by up to 52 times by having him report every wage paid, in real time.

I can just about reconcile myself to monthly filing.  Quarterly would be better, but weekly is totally unacceptable.

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By Huw Williams
22nd Jul 2012 07:19

PAYE deductions by HMRC

Just read through this thread and was struck by the idea of HMRC doing the tax calculations and deductions.

Would this worry anyone else?

At the moment employees get a payslip telling them how much money they are being paid.  If HMRC do the tax calcualtions, presumably they will get a payslip telling them how much money is being taken from their bank account (it would only work if HMRC have a direct debit on everyone's bank account).  I have heard that banks dont honour direct debits if there isnt enough money in the bank account - so this could significantly reduce PAYE collections.

If there is a different way of doing this, it presumably is that employers pay gross wages to HMRC who then work out the deductions and send the net to employees with a payslip.  Again bank accounts would be needed as I cannot see HMRC trundling round the country handing out wage packets.

Will this mean HMRC sitting on wages for people with multiple employments which pay on different days as they cannot work out the sums properly until they have all the information?

If HMRC do the calculations can they also dip into employer bank accounts for the Employer's NIC?  Or will employers be allowed to work out their own figures and argue about differences later?  Or will NIC be abolished as too complicated?

Would you expect a mammoth computer to work all this stuff out centrally and not make a single mistake?  What happens when mistakes are made?  The employee will no doubt complain to their (one and only?) employer who will not know what has been paid where because data protection laws mean that HMRC cannot tell them (and of course if there is a mistake it is possible that the HMRC mammoth computer may not know what it has done anyway).

Could I suggest that MPs are the first group to be trialled on any system which involved HMRC doing all the deductions?

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