Owner Kate Upcraft Consultancy Ltd
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HMRC should stabilise RTI before MTD

7th Oct 2016
Owner Kate Upcraft Consultancy Ltd
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Kate Upcraft reviews the latest research into how small and micro employers cope with the demands of RTI reporting.

The aim of the government’s research was to tease out what HMRC could do to better to support error-free RTI reporting. The results appear to have surprised the researchers, and the errors in the report surprised me.

File first, check later?

The research begins with the assumption that the full payment submission (FPS) would be sent before the payroll has been checked. A helpful diagram illustrates this – why an employer would file a return to HMRC before checking it is beyond me!

I do agree that the priority for any business is paying their own staff (so they turn up tomorrow), and paying HMRC (so the bailiffs don’t turn up tomorrow). The reason that there is a disconnect between filing and payment date is that HMRC still have a deadline of the 22nd for receiving remittances.

It is the DWP that needs RTI data at the payment date for universal credit (UC) purposes. The fact that UC has not rolled out as quickly as had been expected has meant there is little understanding of the difference between the needs of the two departments.

Understanding RTI

It concerns me to learn there are still agents who struggle with the rudiments of RTI. As this is the way that employers have been operating PAYE for three years now there is no excuse for someone who is being paid to provide a payroll service not to understand the statutory obligations.

Equally if the agent doesn’t have the payroll data from the client to file an FPS on time, they also can’t pay the employees. I don’t accept that an employer who has outsourced their payroll should receive a late filing penalty, unless the even more business-critical task of paying staff was also late for some reason.

Better guidance

One of the key findings is that HMRC’s approach of creating more guidance to solve RTI non-compliance is counterproductive. Small employers are bombarded with information from government, and have neither the time nor inclination to read it, even if they could navigate the gov.uk website, which the report clearly demonstrates they cannot.

What is needed is better, more focused, guidance. I would suggest that this is provided when a PAYE scheme is first registered. Telephone support needs to be easily accessible and staffed by advisers with up-to-date and comprehensive RTI knowledge.

If the terminology and purpose of a file is not understood, such as with the earlier year update (EYU), then scrap the file. We do need a way to correct RTI submissions after the year end, such as by submitting a revised month 12 FPS, within a longer period than is currently permitted.

RTI penalties

The blunt instrument of RTI penalties comes in for criticism, as the penalty letter does not explain why HMRC perceives a failure has occurred.

ExampleIn the early days of RTI my client received a late filing penalty and appealed it on the grounds that no FPSs had been submitted late. Only when the appeal was rejected did the second communication provide details of the first five employees who had data that led HMRC systems to treat the file as late.

This was a hugely helpful diagnostic tool as it emerged that the payroll software was sending the wrong payment date for a quarterly payroll. If the selection of employees had been contained in the first letter, no appeal would have been necessary and the employer could have immediately raised this with their payroll software provider.

Penalty system off

No wonder the research finds that there is little understanding of the RTI penalty regime. The automatic penalty system has effectively been turned off for the last two tax years, as the RTI data isn’t fit for penalty automation. Only risk-assessed manually produced penalties are being issued.

The new PAYE sanctions are not likely to come into effect until April 2018, but that does provide a welcome opportunity to re-design the communications that employers receive.

Error resolution

Reference is made in the research to the impact that RTI error resolution has had on HMRC resources. There is less acknowledgement of the impact that HMRC errors have on employers and agents. Although the perennial issues with HMRC’s telephone support are acknowledged.

I have clients who still have errors caused by HMRC systems corrupting data, which remain unresolved from the start of RTI in April 2013.

Waiting for review

We have been promised a post-implementation review of RTI by HMRC, which could also address some of the ongoing issues they have with RTI. This review still hasn’t been published.

I would like some reassurance from HMRC on their plans to stabilise their systems, rather than the constant mantra of “employers’ actions are causing the problems”. As the core RTI and tax payment systems will be the bedrock of Making Tax Digital, it is essential that those systems are stable before MTD is built on top.


Replies (5)

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Chris M
By mr. mischief
09th Oct 2016 10:59

Good points, Kate, it will fall on deaf ears within HMRC so I would just go straight to the Treasury Select Committee (TSC) with them. In my submission to the TSC I forgot to mention that of the 6 PAYE penalty notices my client base have recieved in 2016-17 tax year (some for earlier tax years) a total of 6 have been based on spurious and error-strewn data held by HMRC. Not one fine has stuck.

Let's sort out the last load of drivel you dumped on small businesses, HMRC, before starting the next, and even worse, one!

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By RobertD
10th Oct 2016 09:03
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Jason Piper
By Jason Piper
10th Oct 2016 12:21

There's been a tendency for HMRC to say "businesses have coped with RTI and auto-enrolment, so they'll find MTD easy" - but the message I usually hear from business is more along the lines of "We coped with RTI, and have just about managed to get on top of auto-enrolment - but *more* government online forms and penalties? It's just too much". Particularly striking was the 20 employee plastering business; labouring under H&S risk assessments as well, their response to MTD was "We'll retire. We can barely afford to, but simply can't cope with all the red tape." And that's 20 PAYE plasterers out of employment, straight off...

Thanks (2)
By DK Simpkins
10th Oct 2016 13:18

And perhaps HMRC ought to sort out their known IT problems with regards CIS monthly returns/verifications as well. Resulting in GNNs being incorrectly issued.

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By Smokoe Joe
15th Oct 2016 11:21

I was told last week by an hmrc operative that the rti submissions are banked and uploaded twice a month to the hmrc system!

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