Comments from ACCA to HM Revenue and Customs (HMRC), February 2011.
ACCA supports the aim of improving the efficiency and effectiveness of the PAYE system as a means to collect the correct amount of tax from employees. There are many encouraging elements in the consultation document, such as the proposals to retain (at least in the medium term) an alternative information transmission channel for those who do not use BACs and to relax the obligations falling on small employers who rely on third parties for preparation and submission of their PAYE returns.
However ACCA is concerned at the pace of change. The concerns expressed in our response to the Consultation Document of July 2010 around the Centralised Deductions model apply equally to RTI. Creating a viable technical model will be difficult. Making it work in the real word will be harder. As with any IT project, HMRC needs to ensure that it is building on a stable platform before proposing radical change. We do not doubt that NPS operating to its full potential should be able to handle the processing of accurate and timely information to implement RTI. But NPS has not yet had the chance to prove that it is reliable, nor HMRC that they can reliably operate it. Introducing the complexity of RTI, and mandating it for all employers within 18 months of the first live test, appears to be highly optimistic. The draft timetable makes it clear that the 'final' system will not have run for a full year for employers of any size before becoming compulsory. This conflicts with both common sense and the Carter principles. The desire to implement the new processes in time to support the DWP's introduction of Universal Credit is understandable, but should not be allowed to overrule the prudent management of the single most important element of the UK tax collection machine.
ACCA has considered the specific questions in the Consultation Document and sets out below responses on those issues of most concern and relevance to our members, and those questions where our experience of other HMRC IT projects can provide insight.
Phasing out of the year end process is one of the main 'selling points' of RTI. For employees with no other source of income, there should be no need for traditional year end reports to be prepared or submitted if the system performs as expected. However, employers will still need to prepare annualised information for employees who prepare SA tax returns, so the benefits of RTI will be diluted. The phasing out of consistent year end information reports may even result in an increased burden on tax payers. Employers will no longer be under the same obligation to provide uniform summaries of information, and the relaxed requirements may lead to similar inconsistencies in reporting of employment income information as currently exist in relation to bank interest information, with varying practices on presentation of net and gross figures and reports for part years.
Employer level deductions will need to be calculated separately, and in many cases it will not be feasible to prepare the information at time of payment to the employees. A monthly process would fit most easily with the rest of the RTI landscape.
In many cases, no. The time and effort needed to transfer the information and upgrade payroll systems must not be underestimated, particularly as every large employer in the country will be upgrading simultaneously.
Different employers will give different answers to this question. HMRC should ensure that it is able to accommodate all preferences, or else risk imposing extra burdens on business as a result of RTI.
The current payment methods should be retained.
Quarterly and annual payments should be retained.
Incorporating the P45/P46 information details into RTI, and removing the need for separate notification, should have some administrative benefits for employers. However, as with year end information, the details will still need to be communicated to the employee both for their own purposes and for a new employer to be able to apply the correct tax code. The alternative is for a fixed 'new joiner' code to be applied until HMRC have processed the first monthly submission containing details of the new starter, which will inevitably introduce an error into the system which will require adjustment in a later period.
For a typical ACCA practice, preparing payrolls for 70 of its 800 or so SME clients, less than 20 employers use BACs. The principal issue appears to be cost, combined with the ready availability of easier and cheaper alternative methods of payment. Many small businesses still pay cash, and most write cheques or use internet banking.
The provision of an alternative internet channel for provision of RTI data will be essential for them.
Yes
In practice, there will be many instances where net wages are not 'paid' exactly. For example, where an employee has received an advance which is deducted; where expenses are re-imbursed with the net pay; to clear overdrawn director's loan accounts; and where directors don't pay themselves due to poor cashflow, and it is credited to their loan account. The idea that the replacement of an annual PAYE return with reports every month will reduce the burden on small businesses is, in the words of one of our members, 'ludicrous'. The small workforces with which they deal tend to be reasonably static, and preparation of forms P45/P46 etc are not particularly onerous (especially online). Where payroll services are provided by accountants filing the P35 (again electronically) once a year is typically an extra cost on top of routine payroll services. Filing 12 times a year (or indeed 52 times) would of course increase costs. 'It is never a matter of just 'pushing a button''.
ACCA is concerned at the pace of change. The concerns expressed in our response to the Consultation Document of July 2010 around the Centralised Deductions model apply equally to RTI. Creating a viable technical model will be difficult. Making it work in the real word will be harder. As with any IT project, HMRC needs to ensure that it is building on a stable platform before proposing radical change. We do not doubt that NPS operating to its full potential should be able to handle the processing of accurate and timely information to implement RTI. But NPS has not yet had the chance to prove that it is reliable, nor HMRC that they can reliably operate it. Introducing the complexity of RTI, and mandating it for all employers within 18 months of the first live test, appears to be highly optimistic. The draft timetable makes it clear that the 'final' system will not have run for a full year for employers of any size before becoming compulsory. This conflicts with both common sense and the Carter principles. The desire to implement the new processes in time to support the DWP's introduction of Universal Credit is understandable, but should not be allowed to overrule the prudent management of the single most important element of the UK tax collection machine.
ACCA is acutely aware of the difficulties caused by mandation of online filing for corporation tax in iXBRL format. The software and hardware upgrades alone have imposed significant burdens on many businesses. The changes to working process for accountancy practices have increased costs, which in the current economic environment can ill be afforded either by the advisers or their taxpayer clients. The move to RTI is likely to impose similar IT burdens on employers, and will in addition require every employer to change their payroll practices. Forcing the entire employer population to change simultaneously within an 18 month window will give little or no opportunity for employers to learn from their own, or others', mistakes before being forced to implement new processes themselves. A more measured introduction of the new system would reduce costs, both direct and indirect, on employers. Giving the system time to bed in, and for problems to emerge and be resolved, would improve long term performance of the system and reduce the likelihood of catastrophic failure at any stage of the process.
The proposed timetable may be achievable, but undoubtedly at greater cost than a staged rollout from larger employers down. Whether the cost is borne immediately by business or HMRC, it represents a long term loss of absolute resource which could usefully be deployed elsewhere. The drive to work within the DWP timetable for introduction of the Universal Credit risks destroying the projected benefits of RTI, certainly in the short term, and possibly in the long term if the accelerated development process leads to structural flaws which might otherwise have been identified and resolved during a more thorough testing and evaluation process