NPS: How will HMRC's computer system cope this year?
Annual coding notices started going out last month. With the past year's chaos behind us, Rebecca Benneyworth sets the scene for the 2010-11 year end process.
HMRC's National Insurance and PAYE Service (NPS) system went live in July 2009. This is a massive computer system that now organises them by employee, so that all employments are brought together in a single place. This approach will help employers calculate and deduct tax more accurately, as the system will allocate personal allowances and so on between employments as necessary.
The system was populated with data brought together from the old employer-based computer systems which were held regionally. On the old systems, employees only existed in relation to each employment so it was not possible to amalgamate tax records year by year for those with multiple employments. Consequently, the employee records needed to be reconciled annually – a task which has not been performed for several years.
One of the key migration issues was the poor state of the employee records on the legacy systems. There was a considerable amount of redundant data which was not adequately identified before the migration and this led to significant issues in Spring 2010 when the coding run commenced.
Annual coding run
The 2010 coding run which started in late January produced a very considerable number of issues, with many individuals receiving multiple codes and many of these relating to old employments which had ceased years before. This was caused by a failure to cleanse the employee records adequately before the run was carried out – but HMRC had decided that this was the easiest way to identify all of the issues. It is fair to say that the authority was probably dismayed by the volume of incorrect data they were dealing with.
Information on the 2011 coding run was issued on 14 January 2011. It is anticipated that the coding run will be less troublesome than last year, as much of the data has now been cleansed – some of it manually. HMRC’s announcement states that the IT fixes and manual checking employed over the last year has provided confidence in the records – which have been extensively tested in the run up to the coding run commencing.
The number of coding notices sent to employers this year is a staggering 17–18m. These will be issued between 23 February and 25 March.
The individual versions of these started to be issued on 17 January, and this will run through to 16 March. However, it is important to remember that agent copies will no longer be issued, so you will need to ensure that your clients pass these to you – or contact you if they are in any doubt. It is still possible that employee will receive more than one notice of coding – as one will be issued for each source of employment or pension. In particular as some pension providers may deal with a number of occupational schemes, there may be multiple coding notices for a single pension provider, but these will relate to each scheme or payroll on which the individual is included.
Benefits and expenses
P11D returns are processed to another computer system known as the Employer Compliance System. This system normally interacts with NPS and passes over the data on benefits etc so that they are reflected in notices of coding. This link was switched off during 2010 so that the data interface could be thoroughly tested before going live. In consequence the 2009/10 P11D’s were only processed to NPS from November 2010. Normally this interface would operate during July as P11D’s are filed. During November and early December around 4.7m P11Ds were processed to employee records.
Where the result of this data flow was a liability for 2009-10 of up to £2,000, this will reflect on the notice of coding for 2011/12 being issued now. Taxpayers with a liability of more than £2,000 for 2009/10 were contacted to arrange payment. Note that the moratorium on collecting underpayments of less than £300 applied only to the reconciliations in respect of 2008/09 and earlier years, and not to 2009/10.
The data was also used to update codes to reflect current benefits (according to 2009/10 P11Ds), and again this would normally happen during the summer of each year. P2s and P6s (notices of coding for employee and employer respectively) would be issued at this stage.
The annual reconciliation of taxpayer records has not been carried out for several years, and the implementation of NPS has allowed much of this to be automated now. This, again gave rise to significant adverse publicity for HMRC in the autumn of 2010 when P800 tax calculations started to be issued. The current position is as follows:
2009/10 tax year - As noted above, the processing of P11D data allowed the 2009/10 reconciliations to proceed automatically. By the end of 2010 90% of 2009/10 records were fully reconciled and taxpayers had been notified and repaid any overpayments. The balance of 2009/10 cases will be cleared by the end of March 2011. It is anticipated that the annual reconciliations should provoke limited problems in future. The process outlined above for 2009/10 will be applied for future years, although this will start much earlier in the year.
2008/09 tax year - The reconciliation work commenced in autumn of 2010 started with 2008/09. The resulting tax calculations attracted much publicity, and the following approaches were applied :
- All overpayments were dealt with and repaid to taxpayers – with in excess of £1 billion having been repaid by the end of 2010.
- Underpayments of less than £300 were subject to a de minimis and not pursued. This enabled HMRC to concentrate resource on larger debts.
- Some taxpayers were able to claim the benefit of ESC A19, under which if HMRC had all of the information relating to the taxpayer’s position and failed to act promptly on it, the tax due would be remitted.
- Some of the larger liabilities have been tackled with sensitivity and taxpayers offered up to three years to pay with no interest charges. Each case is dealt with on its merits.
Where an underpayment relating to either 2008/09 or 2009/10 relates to the payment of state pension which has not been reflected through PAYE codes in employment or occupational pension. Underpayments relating to these errors in relation to state pension payments that commenced in 2008/09 or earlier have been dealt with under ESC A19 on a blanket basis, so that tax underpayments resulting from a failure to code out state pension entitlement for both of these years have been cancelled.
Where the coding error relates to a state pension which commenced in 2009/10 then the debt will be sought from the taxpayer as the conditions for ESC A19 have not been met.
No underpayments will be pursued in relation to 2006/07 or earlier years; HMRC will review cases where it is anticipated that a repayment will be due.
For 2007/08 underpayments of under £300 will not be collected, but the remaining 400,000 taxpayers who owe tax for that year will be contacted. The tax will, as far as possible, be coded out in 2011/12.
So there is where we are up to so far with NPS; we already know that more functions will be switched on after April (more of that later!) – it’s starting to build into quite a picture!
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