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PAYE e-filing: Revenue head reveals the truth

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25th Dec 2005
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Linda Pullan

Will compulsory e-filing bring streamlined communication, or technological headaches, or a mixture? In a special report, Philip Whiteley and Linda Pullan (pictured) of Payroll World interview Don Macarthur, head of the Revenue's Employer Programme.

For tax purposes an 'employer' is a PAYE reference number, and many employers have numerous PAYE reference numbers. Will it be each reference number that is fined for late or incorrect e-filing?

Don Macarthur: The intention behind all of this is to encourage employers to get to grips with new technology, not to impose penalties. But, yes, the legislation for employers has always in practice operated by assuming that each PAYE reference is an employer, and that's effectively the way this legislation will operate.

At the Inland Revenue, how do you link different PAYE references from the same employer?

At the moment, sadly, our IT does not give us a link across a number of different employer references ' not for that purpose anyway. But we are looking to establish that [facility]. One exception, though, is with our electronic data interchange (EDI) service, where it is essential we are able to relate multiple references to one employer to assist bringing all their schemes on board.

Do you know when you will have this facility?

We are not able to give a public commitment to the date, but it is certainly something that we want to deliver as early as we possible can.

But it has always been the case that, if an employer has 40 PAYE references and if each one of those 40 references is a return submitted late or with errors, potentially we could treat each one separately for penalty purposes. We want to modernise the system that has been around since the early 1980s. It simply wasn't possible in those days to have a national database of employers, we had to have 12 regional databases.

It would be an advantage for employers to consolidate some of their reference numbers

It might be ' if employers wanted to do that. Obviously, most employers will have set up separate reference numbers for good, practical reasons. There might be reasons why an employer might want to have the payroll for Leeds dealt with in a separate place from the payroll for Bristol. But I suspect that some of those reasons are probably historic. I'm sure that some employers may have set up separate references owing to the same technological constraints that we had 20 years ago.

Are the penalties automatic? What steps will you take if someone fails to file electronically?

I don't think we have properly decided yet because we are talking more than a year away, and we do have to get the balance right between trying to get some automation of penalties, but at the same time we are very keen not to penalise employers who don't deserve to be, if they have tried very hard to get it right.

So, presumably one doesn't receive a £3,000 fine for a single digit missing from one NI number, but where is the threshold?

Well I would certainly hope not. We are having continuing discussions about how we actually police the borderline.

With the Quality Standard if there's an error there that prevents it going through then the whole submission is rejected

Yes, it is. And then we have to look, partly electronically and partly manually, at whether a penalty is going to be imposed or not. And at the end of the day if an employer gets a penalty notice that they don't agree with then they're entitled to appeal. It is then going to be down to quite a senior official in the local office who is going to have the responsibility of taking that appeal to the general commissioners at the tribunal.

We don't want to waste the time either of our local staff or of employers in building up complex cases that either won't go to the commissioners at all or are likely to get turned down by the commissioners.

If a submission fails the Quality Standard, how much information will the employer get as to why?

The intention is very much to say where it is that the errors lie and to put that report into, as far as we can, ordinary plain English rather than computer-speak or civil service-speak. There will be a reply message of the same kind that people get when they are purchasing goods on the internet, for example.

If there is a rejection under the Quality Standard under one item or category, will you have to resubmit the whole thing?

I think the plan is that the whole return will need to be re-submitted. But if the return is being submitted in chunks, levels 1 and 2 of the Quality Standard will be applied to each chunk and any errors notified to the submitter so there will be an opportunity to correct those errors at that time.

It is quite a big change...

It is a concern, but the other reaction that I get from employers is that they are looking forward to the day when we tell them about their errors straight away while they've got the paperwork in front of them and they've got the issue in their minds, rather than six months later. We will be providing a test service for payroll software providers later this year, as we always do, and we hope to be able to provide a 'test in live' service for employers shortly before next year's end-of-year filing season.

It is a narrow space of time between the end of the financial year (5 April) and the deadline for submissions (19 May). Will the technological infrastructure be able to cope with this surge in demand?

We have been seeking and getting reassurances on that all the way through, whatever the peak of information flows is around about 19 May, and contingency plans are being worked up.

We are well aware that this is a big challenge for the department. It's a big technological challenge; it's a big logistical operational challenge, and actually it is because we've got a big challenge that has to be delivered by specific early dates that some of the things that we would dearly love to have done, such as setting up an employer database, have had to be deferred. We are very strong, at the department, on delivering a few things safely rather than a few more things with risks attached.

How many P14s?

55 million, I think, is the total number of P14s. The IT people tell me that they are totally confident. Colleagues of mine who have been closely involved have been cross-examining the IT people.

What if significant numbers of employers simply don't bother to file electronically ' say half the 10,800 due to file by 19 May 2005?

We just don't expect that to happen. We have quite a lot of survey information. We have contacted each of the 10,800 individually over the past few months and we think we can be quite confident in a very high percentage of the 10,800 filing online by May 2005.

Some employers have expressed concern over the cost. Particularly one employer that we mentioned that had 500,000 P14s and had to use a specialist third-party Value Added Network and it cost them £14,000 to transmit the information. So it's a difficult one for employers to follow, isn't it?

I think the issue really is whether the employer focuses only on the narrow requirement introduced by legislation, or on the wider strategy that that legislation is intended to deliver, which is that all employers ought to be encouraged to make much greater use of new technology in the round. So, not just technology for end of year but for in year as well; not just technology for sending things down the wire but technology to avoid arithmetic errors, transcription errors and the like as well; technology to save unnecessary transmissions of data between two different parts of an organisation.

These were transmission costs, so they would be recurring unless and until the internet could cope with that volume of data...

Yes, though the other thing to mention is that there is a host of good deals and less good deals around, to the extent that we have been able to look at prices appearing to be charged for exactly the same service you can get quite a wide range of costs. Therefore, this is one of the things that we have tried to encourage employers to do, through conferences such as the Payroll World conferences, is to shop around.

Some employers are tied in to certain suppliers ' they may be two years in to a five-year deal and they are held to ransom

We recognise that one of the constraints there, particularly for larger employers, moving between software suppliers is not a challenge that people embark upon lightly. The internet is going to be suitable for many more employers in a year's time than it is today. By April-May 2005, our plans are that we will be able to accept a single internet file with 150,000 P14s, through compression of the data, in a single transmission. We have had a 25,000 one in, but we usually say 15,000-20,000 at the moment.

One of the messages we are putting out to employers as well as we can is that you don't have to wait til 2005. Whatever you can do to practise; check first and thus avoid the pitfalls, makes sense.

Is there likely to be a switch to the internet for next year?

Yes. It is worth saying, though, that more employers (over 9,000) used the internet service in the year just finished than used EDI (nearly 6,000). In most cases getting involved in EDI requires quite a lot of detailed hand-holding and testing and getting ready. That has proved the case with all the larger employers and bureaux using EDI.

Could you tell us more about the external routing interface component (ERIC) system?

The name colleagues originally came up with was holding bay. It was originally prescribed as the mechanism by which we could handle employers sending parts of their end-of-year data from different parts of the country or one part from an agent, one part from the employer's office, one part by EDI, one part by internet; which is a facility that we have said will be available for next spring.

So it is just going to be a holding bay, to capture anything that's not a complete return?

From the employer's point of view, yes. Whether the return comes in chunks or all at one time, it's the means by which the information is then going to be routed to the back-end systems; ultimately to individual tax records and individual NICs records.

When is ERIC going to be ready?

ERIC will be developed and tested over the coming year. It should be ready for April 2005 but even if there are problems we will, of course, have contingency plans to allow online filing to continue.

The Quality Standard: for employers, that is going to be compulsory. Why is it not compulsory for the software provider?

We thought it would give employers and software providers greater freedom if we allowed them to come up with their own solution as to how the technology would enable them to meet the Quality Standard. We have been advising employers to talk to their software provider, to mention the Quality Standard and to ask them what they're doing to help them meet it.

But the legacy data is going to be the biggest problem; the wide use of temporary NI numbers which are going to be invalid under QS.

We've been communicating that to software providers for some months now. A lot of them are building that into their software.

We have had mixed messages as to whether a return would be rejected if it is on paper [still allowed for smaller and medium sized employers this year] and doesn't meet the Quality Standard. Can you clarify this point?

The Quality Standard is developed as an IT tool for checking information that has come in online. It is not something that, at the moment, can be applied manually to a paper return in the same way. But the intention of the Quality Standard is the same as the intention of what used to be called Regulation 43, and now Regulation 73, following the rewrite, which specifies a lot of the same sort of information, that you must have employee's name; address if known, NI number, dob, sex, code.

The Quality Standard goes into more detail than Regulation 73, part of the PAYE regulations, but the principle is exactly the same.

A lot of people haven't realised that by registering for the internet, that automatically switches on all the electronic in-year forms. Is that going to change in the future ' for example with EDI you tell the Revenue which ones you want electronically?

It has always been possible to opt out of receiving electronic forms even after registering by phoning the Electronic Business Unit. This April we made two major improvements. Firstly, employers can choose not to receive electronic forms simply by selecting that option on the 'preferences' section of the employers' portal page. Secondly, the 'preferences' service allows them to opt to receive particular forms electronically while still getting others on paper.

Impact of switch from EDS to Ernst & Young Cap Gemini as the Revenue's computer services provider: will this cause disruption to preparations for e-filing?

No. This is one of the big things that we explained to Cap Gemini and the other bidders right from the start ' that this was going to have to work and that whoever got the new contract, if there were to be a change, would have to deliver that. Large numbers of EDS individuals are moving over to Cap Gemini.

(This article first appeared in Payroll World)

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