Having just done P11D's reporting an assortment of reimbursed business expenses and company credit card use for one man companies , all of which will be claimed eventually as W,E&N I am now getting the usual spate of erroneous PAYE codes including these as deductions. Impressed by HMRC's efficiency this year (months earlier than previously) but am very worried about how RTI will cope where, as an extreme example, I have a director who is now on a K14890(!) code due to his credit card use. None of this is taxable but even if it is amended directly rather than waiting for his Tax Return it could take a month to take effect. In the real world the code change would be pragmatically ignored pending amendment but under RTI the employer would presumably be expected to deduct and pay over extra tax of up to £6k this month, which, even if it gets it back next month, is unrealistic for their cash flow.
The concept of taxing expenses regardless of any personal benefit until a claim is received is archaic and contrary to the principals of self assessment prevalent in all other areas of tax so needs thorough review anyway. Until it is I can't see RTI working well for small companies who don't have the segreation of duties to qualify for dispensations.
Simplicity can have advantages but at the end of the day I wonder how many of the represented will take up the scheme when they realise that it is likely to increase income in the first year (most of the small business year end adjustments we seem to make are for creditors and accruals!) and it's not really going to affect accountancy costs unless they decide to go it alone.
I also wonder how realistic the fixed rate expenses will be. Not generous I'm sure and given it took 20 odd years to review and amend the mileage rate. I suspect that long term use could prove costly.
A final thought - has anyone else wondered what other accounts users are likely to think of all this? The ability to manipulate the figures could make assessments of income trends for mortgage applications, letting references, Court assessments of income for divorces, loss of earnings claims, etc interesting to say the least. .
At the risk of being "fair" to the Revenue I think you will find their entire online service is shut down for scheduled (and much publicised) update for the new tax year. Try again on 6th April?
I tried emphasising the impending VAT increase to encourage non-registered clients to send their information earlier. Apparently 2.5% is not a sufficient incentive to overcome the lethargy...
Should we really be surprised that represented clients are more likely to "understate" their tax liabilities? As profssionals we rightly have to work within the law, but this allows for/requires judgement in many areas. It also our job to get the best result for our clients, again within the law (lets not get into the whole avoidance/evasion issue) so it can be expected that sometimes these judgements would give the benefit of the doubt to the tax payer. If, on Revenue challenge, they find they disagree with some judgements and up the tax bill this is not realy a surprise, especially as the fees for arguing over such areas are often likely to outway the tax benefit. There is no apparent suggestion that the majority of agents are breaching laws or even being unreasonable in arriving at the figures they use, only that the Revenue may disagree with them in some instances. If the majority of cases showed an overstatement of tax liabilities then we would clearly not be doing what our clients pay for and could expect a substantial rise in PII premiums!
That said I
too have come across some examples of appalling advice and accounting from some agents (not all unqualified) and would be happy to see a bit of weeding out of those who abuse the system supposidly to benefit their clients who end up carrying the can. I am happy for the Revenue to keep tabs on my performance (nothing to hide) and if registration helps get rid of the charletans then why not? It could even be good for business.
Re: "I don't see why a small employer would object to typing each wage into HMRC's website..."
I'm afraid you obviously don't deal with that many small employers then. Strange as it may seem in the 21st century there are still a large number of people who don't use computers or don't trust the internet. The laws of probablity (and experience) indicate that some of these will be employers. This is not a good thing but it is the real world we live in. Some of these will, of course, already outsource their payroll to it-literate professionals, but others restrict outside input to the year end filing, not least to minimise costs.
Also, there are many more people who sadly do not trust the Government, for whatever reason, and the idea that they would allow HMRC (with its record on IT security) to have direct control over their bank details and even to make payments is laughable.
I would not agree with their view - I actually promote IT solutions where practical and, properly planned and controlled, such a system could bring many benefits as described - but it is the view of some of my clients and these do need to be taken into account before we get too carried about the wonders of a utopian universal system.
The risk is that we will face a far-too-long phased adoption process which will make the introduction of on-line year end filing look like a quick fix, or end up with a two-tier system where the technophobic are forced to pay out for a bureau service and the mistrusting duck out of the system completely.
I got the impression we had a Government keen to reduce public spending and cut departmental budgets, outsourcing where necessary. PAYE is almost by definition the ultimate in outsourcing - making employers responsible for their employees tax bills. Surely the cost of successfully building and implementing such a system AND a sufficiently large support department to deal with the likely vast number of queries, corrections and other adjustments would be prohibitive in these (post?) recessionary times, flying in the face of all we have heard?
I have clients that are not computer literate and can't/won't use a computer or the internet. They are quite capable of calculating monthly deductions the "old fashioned" way and grudgingly accept that they (in practice we) now need to make year end returns on line. They could not afford the cost of an agent or bureau having to account for their pay on a regular basis so how would they fit in to the proposed system? Or would it be illegal to become an employer if you couldn't use a computer?
Not in my name... I realise this is going against the flow, but am I the only tax practitioner around who was actually looking forward to spending Christmas week with the kids and sleeping it all off in January? 30th November would even have allowed a bit of time for Christmas shopping...
A shorter deadline wouldn't have been easy, but then clients will always drag their feet given the chance, so I don't think it would really have been much worse than it is now. e-filing cuts down the admin and speeds up the process so why not encourage taxpayers to comply while they can still remember what they did last year? Or was the real issue how to utilise over-specialised staff in the extra months after the deadline?
An earlier commentator said Carter was going on his Christmas card list - if only I had time I'd send him one too!
My answers
What about pseudo-benefits?
Having just done P11D's reporting an assortment of reimbursed business expenses and company credit card use for one man companies , all of which will be claimed eventually as W,E&N I am now getting the usual spate of erroneous PAYE codes including these as deductions. Impressed by HMRC's efficiency this year (months earlier than previously) but am very worried about how RTI will cope where, as an extreme example, I have a director who is now on a K14890(!) code due to his credit card use. None of this is taxable but even if it is amended directly rather than waiting for his Tax Return it could take a month to take effect. In the real world the code change would be pragmatically ignored pending amendment but under RTI the employer would presumably be expected to deduct and pay over extra tax of up to £6k this month, which, even if it gets it back next month, is unrealistic for their cash flow.
The concept of taxing expenses regardless of any personal benefit until a claim is received is archaic and contrary to the principals of self assessment prevalent in all other areas of tax so needs thorough review anyway. Until it is I can't see RTI working well for small companies who don't have the segreation of duties to qualify for dispensations.
What of other users?
Simplicity can have advantages but at the end of the day I wonder how many of the represented will take up the scheme when they realise that it is likely to increase income in the first year (most of the small business year end adjustments we seem to make are for creditors and accruals!) and it's not really going to affect accountancy costs unless they decide to go it alone.
I also wonder how realistic the fixed rate expenses will be. Not generous I'm sure and given it took 20 odd years to review and amend the mileage rate. I suspect that long term use could prove costly.
A final thought - has anyone else wondered what other accounts users are likely to think of all this? The ability to manipulate the figures could make assessments of income trends for mortgage applications, letting references, Court assessments of income for divorces, loss of earnings claims, etc interesting to say the least.
.
System down
At the risk of being "fair" to the Revenue I think you will find their entire online service is shut down for scheduled (and much publicised) update for the new tax year. Try again on 6th April?
Filing incentive
I tried emphasising the impending VAT increase to encourage non-registered clients to send their information earlier. Apparently 2.5% is not a sufficient incentive to overcome the lethargy...
Is it so surprising?
Should we really be surprised that represented clients are more likely to "understate" their tax liabilities? As profssionals we rightly have to work within the law, but this allows for/requires judgement in many areas. It also our job to get the best result for our clients, again within the law (lets not get into the whole avoidance/evasion issue) so it can be expected that sometimes these judgements would give the benefit of the doubt to the tax payer. If, on Revenue challenge, they find they disagree with some judgements and up the tax bill this is not realy a surprise, especially as the fees for arguing over such areas are often likely to outway the tax benefit. There is no apparent suggestion that the majority of agents are breaching laws or even being unreasonable in arriving at the figures they use, only that the Revenue may disagree with them in some instances. If the majority of cases showed an overstatement of tax liabilities then we would clearly not be doing what our clients pay for and could expect a substantial rise in PII premiums!
That said I
too have come across some examples of appalling advice and accounting from some agents (not all unqualified) and would be happy to see a bit of weeding out of those who abuse the system supposidly to benefit their clients who end up carrying the can. I am happy for the Revenue to keep tabs on my performance (nothing to hide) and if registration helps get rid of the charletans then why not? It could even be good for business.
IT phobia and more
Re: "I don't see why a small employer would object to typing each wage into HMRC's website..."
I'm afraid you obviously don't deal with that many small employers then. Strange as it may seem in the 21st century there are still a large number of people who don't use computers or don't trust the internet. The laws of probablity (and experience) indicate that some of these will be employers. This is not a good thing but it is the real world we live in. Some of these will, of course, already outsource their payroll to it-literate professionals, but others restrict outside input to the year end filing, not least to minimise costs.
Also, there are many more people who sadly do not trust the Government, for whatever reason, and the idea that they would allow HMRC (with its record on IT security) to have direct control over their bank details and even to make payments is laughable.
I would not agree with their view - I actually promote IT solutions where practical and, properly planned and controlled, such a system could bring many benefits as described - but it is the view of some of my clients and these do need to be taken into account before we get too carried about the wonders of a utopian universal system.
The risk is that we will face a far-too-long phased adoption process which will make the introduction of on-line year end filing look like a quick fix, or end up with a two-tier system where the technophobic are forced to pay out for a bureau service and the mistrusting duck out of the system completely.
Against the trend?
I got the impression we had a Government keen to reduce public spending and cut departmental budgets, outsourcing where necessary. PAYE is almost by definition the ultimate in outsourcing - making employers responsible for their employees tax bills. Surely the cost of successfully building and implementing such a system AND a sufficiently large support department to deal with the likely vast number of queries, corrections and other adjustments would be prohibitive in these (post?) recessionary times, flying in the face of all we have heard?
And if you haven't got a computer?
I have clients that are not computer literate and can't/won't use a computer or the internet. They are quite capable of calculating monthly deductions the "old fashioned" way and grudgingly accept that they (in practice we) now need to make year end returns on line. They could not afford the cost of an agent or bureau having to account for their pay on a regular basis so how would they fit in to the proposed system? Or would it be illegal to become an employer if you couldn't use a computer?
Not in my name...
I realise this is going against the flow, but am I the only tax practitioner around who was actually looking forward to spending Christmas week with the kids and sleeping it all off in January? 30th November would even have allowed a bit of time for Christmas shopping...
A shorter deadline wouldn't have been easy, but then clients will always drag their feet given the chance, so I don't think it would really have been much worse than it is now. e-filing cuts down the admin and speeds up the process so why not encourage taxpayers to comply while they can still remember what they did last year? Or was the real issue how to utilise over-specialised staff in the extra months after the deadline?
An earlier commentator said Carter was going on his Christmas card list - if only I had time I'd send him one too!