How the Revenue's RTI systems work
As part of AccountingWEB’s investigation into real time information, Nick Huber looks into the technology that drives HMRC’s PAYE reporting processes.
The introduction of real time reporting (RTI) was intended to simplify HMRC’s fragmented Pay As You Earn (PAYE) computer systems. This would reduce tax-code errors and support the universal credit, which has been delayed, by linking the tax and benefit systems.
After 70 years of operation, PAYE was a creaky process that relied on annual reconciliations. Under RTI, employers send information about tax and national insurance they deduct from employees’ wages to the Revenue when they are made. With these “real time” updates already in place, laborious annual reconciliations should no longer be needed.
After nearly a year of operation, however, accountants and employers are still complaining that RTI is producing duplicated employee records and other payroll data errors it was supposed to eradicate.
As part of AccountingWEB’s ongoing review of RTI we asked, is the technology to blame?
What’s behind the curtain?
RTI technology is big and complex.
When reporting in real time most employers send PAYE data in via the government web gateway; some payroll bureaux and larger employers with high staff turnover still use the older EDI (electronic data interchange) system.
When submissions are made HMRC checks them and then passes the information to a new database called “RTI Core”.
This database is a bit like a postal sorting office.
It distributes payrolI data to about 40 other IT systems, including to a new accounting system (based on SAP software); the Enterprise Tax Management System (ETMP) and National Insurance and PAYE System (NPS)
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ETMP is the employer accounting system. It holds the account balances for each PAYE scheme and sends data to other systems including a system for tracking tax debts owed to HMRC.
NPS manages all PAYE records.
The RTI system also sends data to the Department for Work and Pensions, to support its DWP to help it run the forthcoming universal credit, which will replace benefits including income support and housing benefit with a single payment.
Employers can see what payroll tax they’ve paid and owe on HMRC’s web site – via the employer's Business Tax Dashboard.
But this information is only updated twice a month; something employers and accountants have complained about.
Are the systems working?
Assessing how well RTI technology is working is difficult, as few people outside HMRC or its contractors understand it.
Perhaps the most detailed analysis of RTI technology was by investigative journalist Tony Collins. Last year, Collins spoke to an expert on HMRC’s RTI system who said that parts of RTI were in “chaos” – something HMRC has always denied.
HMRC’s IT has been outsourced. The leader of the Aspire outsourcing consortium, CapGemini, refused to answer any questions from Accounting WEB about the new payroll system, saying it was up to HMRC to comment.
HMRC says the technology is working well, apart from some minor teething problems. But as AccountingWEB has reported in the past few weeks, its assurances do not always sit well with accountants and employers who say the technology is producing wrong payroll data.
HMRC has plenty of stats to back up its claim: 47.6m employment records are reported “live” (when an employer pays an employee and deducts taxes). And since April last year HMRC’s IT systems have processed information from more than half a billion payments from employers to employees.
But what about the 420,000 duplicated payroll records that HMRC confirmed were created in the new system during the past 11 months? It says it has corrected about 95%. About 20,000 taxpayers have the wrong tax codes.
Duplicated payroll records were also a problem under the old payroll system, HMRC director general for personal tax Ruth Owen said in an interview with AccountingWEB. RTI technology is improving the situation, she added, by stopping new duplicated records from being created and filtering out common errors for resolution.
“Duplicates were a serious risk to the programme, but I think we’ve been on top of that”, Owen said. “I don’t think it’s the top issue that we need to resolve with RTI.”
HMRC acknowledged it had identified some “unexpected problems” with its new payroll technology but has worked with employers and others to fix the problems quickly.
The department cited feedback from people praising RTI, including accountant Andrew Sanford, who commented: “Now I go on the computer, I put the hours in, push the button and it does it for me. It’s brilliant. I am not aware how the Government see the reporting to be better for them, but certainly saves me time.”
Such enthusiasm was in short supply among Accounting WEB members. After the rash of incorrect late filing notifications in February, Flash Gordon commented that clients were getting used to the fact that they'll “randomly receive incorrect messages and will therefore ignore them”.
Another subscriber, WongR, said that RTI could be improved by relaxing the deadline for sending payroll information.
“The concept was created for the universal credit to which the implementation has been delayed. In my humble opinion, all they need to do is to make the information submission for payrolls one month in arrears and HMRC would have information they need to make universal credit assessments to a sufficient degree of accuracy and the payroll operators will have sufficient time to collect the information necessary and iron out any problems that may have occurred.”
Some problems with RTI have been caused by the way employers have entered data on their submissions, according to HMRC.
Others have been caused by “unexpected problems” with HMRC’s systems, it said when announcing a delay in automatic penalties. So far most of these have been resolved, Ruth Owen said earlier this month.
Improvements are also being planned for HMRC’s payroll technology including:
- A new RTI ‘Late Reporting Reason’ data item to be introduced in the April 2014 system upgrade. This will allow employers to explain why they are submitting data late, for example if they are correcting an earlier submission.
- From April, RTI data will also be used to speed up the renewals process for around 1.7m tax credit claims.
In July last year, a report by the National Audit Office said the financial and accounting systems supporting RTI were not yet accredited due to problems with how HMRC uses and report on payroll data it has received from employers.
“The financial and accounting systems supporting RTI are not yet fully accredited because a number of issues were identified during the pilot,” the report said. “The issues identified do not affect an employer’s ability to submit data to HMRC but do weaken its ability to produce and report financial information on PAYE. The NAO recommends that HMRC urgently address these weaknesses.”
The systems still aren’t accredited.
Ruth Owen said the new accounting software was working well and was able to receive and process all payroll data from the RTI system.
“The phrase [the NAO] used makes it sounds like we haven’t allocated PAYE payments to employers’ and employees’ accounts,” said Owen. “That’s not the case. It’s the internal HRMC trust accounts, which is how we account to Parliament.
“We’re now working with NAO on upgrades we might want to do and whether that will suit their view of financial accreditation. But upgrades cost money. We have to decide what standard we want to set. I can assure you this is about HMRC’s accounts, not individuals’ and schemes’ accounts.”
But some payroll experts are not convinced.
“Sending payroll data in – very easy, payroll software providers have all the software,” says Kate Upcraft, a payroll lecturer and consultant. “People can transmit data in the right format. But for what HMRC does with the data – I wouldn’t even give it five out 10.”
HMRC admits that the move to reporting in real time is a huge change and it will take a while for itself and employers to get used to. “In the same way as employers, we have been learning and adapting as we move through his first year,” the department said.
It’s still unclear whether early teething problems are down to human or computer error. Many people inside and outside of HMRC will be looking to see if a clearer picture emerges in April, after the first year-end of mandatory RTI.