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How the Revenue's RTI systems work

13th Mar 2014
Freelance journalist
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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)

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.

Duplicated Records

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.”

RTI upgrades

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.

NAO concerns

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.

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Replies (23)

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By carnmores
13th Mar 2014 18:03

Tax codes

are now in a bigger mess than before and one of the reasons is overzealous officials coding out 'BIK' that qualify for relief , such as travelling and entertainment. perhaps an amendment can be made to the form to say that they were W&E for business purposes

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By halesir
14th Mar 2014 12:33

Tax Codes

Employer client asked me last week if the 14/15 K code of K13322 which his maintenance fitter had received was likely to be correct? I said "unlikely" as it means he has deductions exceeding £143,000!! Employee hadn't queried it with HMRC as he didn't understand it!!! How many more are there out there in exactly the same position who are going to suffer unnecessarily through HMRC "Computer" ineptitude?

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By ireallyshouldknowthisbut
14th Mar 2014 13:14

.

"It distributes payrolI data to about 40 other IT systems"

Therein lies the problem then.  Its not a proper integrated system, its a sticking plaster job connecting our huge volumes of data submitted to the old systems which cant deal with it.

Huge numbers of errors therefore will be an ongoing issue, no matter how good (or bad) the IT provider, as any fule will tell you in computer design unless you hold each data set once, and you can only change it in one location it won't work properly. 

 

 

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By johnjenkins
17th Mar 2014 12:19

Where I know

HMRC is incorrect and I am 100% sure that I do know the correct code I have always used my own code. I've never once had any problems.

How stupid can HMRC be. Client received incorrect code. We used the one we knew was correct. Submitted tax return. All ok. Halfway through following year they made the same mistake and issued incorrect code, Admittedly this has only happened once but you can't help thinking what is going on.

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Replying to Lone_Wolf:
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By monksview
17th Mar 2014 12:26

Johnjenkins, I always used to use my own code if I knew they were wildly out but with RTI I thought I ought to stop this practice.  The result is I have a ton of stupidly, obviously, incorrect codes, each one of which needs a phone call to HMRC to put them right.  So bloody time consuming, what an absolute waste of time.

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By Old Greying Accountant
17th Mar 2014 12:24

The stupid thing is ....

... tax cannot be more than 50% of gross pay, regardless of the K code!

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By Rozzo52
17th Mar 2014 12:47

RTI

In general terms submitting data online to HMRC does save time, however my take on the incorrect Tax Codes and duplicate records is a data validation issue probably something to do with system design and certain manual processes of HMRC not being properly documented before writing the computer program for these processes. So who is to blame for this not sure.

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By GRETTONPARTNERSHIP
17th Mar 2014 13:08

No reference numbers!

Today I received an email from HMRC telling me I had missed a deadline for filing under RTI. I process payroll for several businesses. Of course the email had no name or reference number on it! Which business does the email refer to? Do they think I am a mind reader? Quite possibly it relates to a business where I asked HMRC before last April to cancel the PAYE scheme.

Is HMRC really daft enough to send an email with no reference or was it a fake? Well most of us know the answer to the first question!

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Replying to Tax Dragon:
Euan's picture
By Euan MacLennan
17th Mar 2014 14:22

Probably fake

GRETTONPARTNERSHIP wrote:

Today I received an email from HMRC telling me I had missed a deadline for filing under RTI. I process payroll for several businesses. Of course the email had no name or reference number on it! Which business does the email refer to? Do they think I am a mind reader? Quite possibly it relates to a business where I asked HMRC before last April to cancel the PAYE scheme.

Is HMRC really daft enough to send an email with no reference or was it a fake? Well most of us know the answer to the first question!

See the RTI e-mail thread in Any Answers.

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Replying to Tax Dragon:
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By Kate Horton
18th Mar 2014 11:18

Another Generic Notice?

We too have received an email today from HMRC warning that we've missed a deadline and that they wrote to us in June 2013 and September 2013 to tell us.  Apparently we still haven't made any electronic PAYE report in real time this year!  As Gretton Partnership mentioned on their post, there is no scheme numbers or any reference whatsoever.  What a shambles!

 

Apologies, I've just seen Jacqui Brennan's post.  What now then?  Could refer to any client.

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By cfm-taxassist
17th Mar 2014 13:17

RTI

The RTI system, like so many modern computer systems, shows all the signs of having been designed by technical people, with a bias to HMRC/DWP "requirements", rather than people who really understand the real, down to earth world that has to operate it.

Would it really have been that bad to have one, comprehensive submission each month, due before 19th and reporting to the previous 5th, i.e. to line up with payment deadline.  This would give payroll operators time to resolve issues, do away with the ridiculous: submit FPS(s), submit CIS return and, oh, do we need to do an EPS as well?, and still give much more up to date information.

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Replying to wilcoskip:
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By sasoolka
17th Mar 2014 14:31

RTI

Completely agree, would make life so much easier

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By raybackler
17th Mar 2014 14:49

Got a reminder with no references too

It looks official, but if it is a fake it is an excellent fake.  It has an e mail address that is @gateway.gov.uk, which is the same one used for confirmations of PAYE RTI submissions.  As we act for about 60 clients, it would be nice to have a clue who they are talking about.  We keep meticulous records to ensure all RTI filing confirmations are successful, so I am sure it is either a defunct PAYE client or an annual payroll.

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By mike19444
17th Mar 2014 14:49

Monthly submissions for NO employees ....

I now have to file monthly returns despite the fact that my company has no (zero, none) employees.

How crazy is that?

 

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By Henri-Hound
17th Mar 2014 15:59

Monthly submissions for NO employees

 

I totally agree nil returns are crazy.  I have a Company with subcontractors operating CIS but no employees at the moment I have to also file a Nil return each month.  Unfortunately it must be filed by 6th of month but I am unable to send it prior to the 6th because of the CIS return for some reason you are unable to file the return, I use payroo and have been advised by them that I have until the 19th of the month to file the return BUT have been advised by HMRC it must be filed on or prior to 6th of the month so if the CIS return ends on 5th of the month have to file the return on 6th the day after if not I will be fined when the new penalty is imposed not much leeway and a lot of hassle for a NIL return!

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By JB44
17th Mar 2014 16:22

Mid Year Change of Payroll Bureau

We have become aware of a fault with RTI in dealing with records being migrated to new software (i.e. from one bureau to another) during a tax year. RTI seems to be corrupted by disparities in the referencing used by different payroll software packages, resulting in excessive demands for unpaid tax due to duplicated records. We are also struggling to get any clear advice from HMRC on how to resolve the problem. Until then the message must be, avoid taking on new payroll clients until the tax year end.

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By Jacqui Brennan
17th Mar 2014 21:00

Its not a fake

Queried with HMRC today and the email is designed to be sent to the inbox of the employer, but like the old unreferenced letters, it has also been sent to agents who are registered on the HMRC portal.

 

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By GRETTONPARTNERSHIP
18th Mar 2014 10:03

More notices!

Client phoned up today and had received email from HMRC about lack of returns. It said they wrote to her in June and September. Client says that she received no such letters or emails. We process the payroll and have all the receipts for the RTI submissions. Do HMRC really think their systems are working? Are we going to be told again to just ignore their notices?

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By spurs1952
18th Mar 2014 10:15

RTI - If It Ain't Broke Don't Fix it etc etc ...................

Oooooh ahhhhhhhhhh  errrrrrrrrr   - hang on a minute !!!!!!

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By RobSmith
18th Mar 2014 12:29

What system?

There's no system. No thought. No control.

Why do they have several databases at PAYE? I still have a handfull of clients where HMRC have my old address. How can this happen?

Why do they keep losing payments made by the client? I have one client where HMRC have even reallocated payments from one month to several others in some random splatter-gun exercise, when all payments have been made on time and I've got the IR references to prove it.

Why is there no Agent's dedicated line? It takes half an hour to get through to some poor sod on the other end, who usually ends up in tears after I've finished with them.

I've now had two letters telling me the client has overpaid on PAYE. .. An actual factual letter! As the client is CIS and is a Limited Company, of course he's bloody overpaid on PAYE. And aren't they just telling me what I've already told them through RTI? Who thought it was a great idea to SEND ME A LETTER to tell me what I already knew and had already told them?

It's a complete dog's breakfast.

And the Conservatives had the brass neck to get some out-of-work actor posing as a business-man to tell us on their party political broadcast that they were reducing red-tape for SMEs. Lying bastards.

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By Kazmc
18th Mar 2014 13:19

response from HMRC

I forwarded our emails we received yesterday (the one that says we have not filed any submissions and they wrote to us in June & September blah blah) to HMRCs phishing Dept and this is the response we received today.......

 

 

Thank you for contacting HM Revenue & Customs.

 

The e-mail you have received was sent from HM Revenue & Customs and is nothing to be concerned about.

 

If you think you have received the email in error please contact us directly. HMRC contact details are published within the link below: 

 

http://search2.hmrc.gov.uk/kb5/hmrc/contactus/home.page

 

Regards

 

HMRC Online Security Team

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By Rosalinda Taylor
19th Mar 2014 10:27

RTI

The theory behind RTI is good and I am for it. The problem is penalty. The legislation states that RTI submission is due on or before payment of salary to each employees. ( please correct my interpretation if this is wrong.)  My question is how can HMRC would know when an employee is paid to enable HMRC to charge penalty for late filing. If for example, an employee's normal payment date is the last day of the month, but he was not paid until two days of the following month. Employer submits RTI when he paid his employee. As far as the HMRC's computer sytem is concern, the submission is late and penalty is sends out. I have noticed this problem during the time when HMRC were sending penalty notifications in February. I studied all of these penalty notifications. My observation was that HMRC was looking as the normal submission date and when there is a change as in my example, the notification for penalty was sent out.

My suggestion is to follow the reporting system of CIS ( once a month).

My other question is; Do you we have the right to appeal against penalty? With various errors and problems, i beleive we should have the right to appeal.

Apart from my concern reagrding penalty, in my experience so far, I beleive RTI will work. However, we are only a small practise. We only have 200 payroll with less than 50 employees.

Please do not comment on my spelling and grammar. Useful comment is welcome.

 

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By davekee
16th May 2014 17:56

Tax Office and Tax Credits - nDuplicate Records

Hi,

Today, we found a bug in the system, TAX Credits Office receive  data from the Tax Office, for peoples "Earned Income", the scenario is as follows:-

I am a Mrs J KEENAN, who works for a company, another person also works for the company called MRS J KE*****, . They send in data for this, Tax Office Create a Duplicate Record.............

Thus, earned income goes to £47k rather than £16k ??????????????

 

No admittance,8 weeks to solve, meanwhile, said 1st person is going without Tax Credits, due too the fact that they took all as OK............. said person has no money for her and  her  kids. ???

 

Cheers.................Dave

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