Chartered Accountants Ireland Response Paper

Introduction and Executive Summary

Chartered Accountants Ireland welcomes the opportunity to set out our comments on the consultation document ‘Improving the operation of Pay As You Earn (PAYE): Collecting Real Time Information’ (RTI) issued by HM Revenue & Customs on 3 December 2010.

The December Consultation document follows on from the initial consultation document of July 2010 which originally put forward two options (including RTI) as possible plans to require employers to submit PAYE information as part of the employee payment process.

While we are aware that the decision to introduce RTI has now been taken, this will be a fundamental change to the UK PAYE system and we therefore welcome the opportunity to influence key factors of the new system. However an overriding concern remains that there is a real and pressing need for public confidence in the National Insurance and PAYE Service (NPS) to first be established before the added complication of RTI becomes part of an already fractured equation.

This can only happen if HMRC are open about the challenges it has faced, and continues to face through the operation of NPS. The forthcoming 2010–2011 year end process will play a key role in this process.

In light of the above we do not intend, in this submission, to provide detailed commentary on the issues and questions posed by this second consultation document on improving the operation of the UK PAYE system. Thus, at this time, we provide brief commentary only on key observations and issues and draw your specific attention to our concluding comments and analysis.

2. Key issues

2.1 The data items to be submitted with the payment

The discussion document proposes that employers will provide certain detailed information when completing their regular pay run for their employees, be that weekly, fortnightly, monthly, etc.

We have no specific comments to make on Annex B – much of the data items to be submitted are likely to be readily available to employers, however we need to be clear that the information HMRC is asking to be provided is really needed as part of an RTI process as this could create an unnecessary administrative burden on employers.

In particular, we are pleased to see that HMRC is mindful of the likely reaction of many SME employers/agents who may be faced with up to 102 data entries (as denoted in Annex B) for each employee at the time of their payroll run. As result it will be important to ensure, as envisaged in the con-doc that if a field is either nil or Not Applicable that no entry is required in these boxes and employers only therefore return that which does apply.

We note that certain employer specific information will require to be submitted to HMRC at the time payment of deductions is made – the administrative burden of providing such information needs to be carefully balanced with the undoubted benefits to HMRC of receiving information on tax and National Insurance deductions in-year.

Key to the process however will be HMRC's ability to react to the information provided. This is an area on which the discussion document is silent. There are thus concerns that not only will HMRC not use the information provided in ‘real time’, but that it will not be sufficiently resourced to do so. This diminishes the proposed impact of RTI, creating an imbalance in the cost benefits analysis of same and would load unnecessary costs onto employers.

2.2 The process of transition to the new system and implementation date of RTI

As a fundamental change to the UK PAYE system, the phase-in period envisaged will be a very necessary step. We recognise that the move to RTI is further intended to support the Department for Work and Pensions (DWP) move to the Universal Credit system in 2013.

If, as stated in the discussion document, RTI's overarching objective is to improve the accuracy of PAYE, the phase-in process and implementation date should naturally flow once it has been established that the NPS is properly equipped for this new system and HMRC have the resources in place to provide ‘real time’ responses to information provided by employers.

The detailed workings of RTI in the UK need to be agreed with key stakeholders through a proper consultation and trial process. Implementation and phase-in should not be set, as it would currently appear to be, simply in response to the DWP's 2013 Universal Credits implementation deadline.

2.3 The identity management process

The process proposed by the discussion document is intended to facilitate an improved employee joining process by offering employers a National Insurance Number verification service to enable employer's to check whether the details given by a new employee match HMRC's records.

This would certainly help to address data quality issues and should save employers work to update their records later. However this supposes that the information held by the NPS is up to date and ‘clean’ and thus for reasons previously stated herein we stress the importance of ensuring that such an information check would actually work as intended.

2.4 Small employers

We have a slight concern about tying in the provision of RTI to the electronic payment process but are fully supportive of modernising communication and submission methods available to taxpayers.

As the associated Impact Assessment published in December recognises, there remain many small employers who engage an agent to file electronically on their behalf at the end of the tax year. For these employers it will certainly be appropriate to let these arrangements continue until the software industry or agency can make the necessary changes to allow integration of the payment instruction and RTI. Or at least until HMRC are able to provide a safe and secure channel for small employer's to make RTI submissions.

Therefore the deferred phase-in for smaller employers until August 2013 should be workable provided a HMRC and/or various commercial software solutions tailored to the small employer are available beforehand. It would also be helpful if HMRC would consider a process of publishing details of approved commercial software similar to the process adopted for iXRBL.

For the reasons previously stated, we have no current comment to make on the remaining questions posed by the discussion document. We do however wish to stress the obvious importance of ensuring that security and data protection measures relating to RTI provided as part of this process are watertight, irrespective of whether a third party provider is used as the conduit for this information.

3. Conclusion

A fundamental principle of any PAYE deduction system (whether new or established) is the need for accuracy so that the numbers of end of year reconciliations resulting in over and underpayments are significantly reduced. We therefore welcome the stated aim of introducing RTI ‘to improve the accuracy of PAYE’.

We also welcome the recognition that moving to RTI must also seek to reduce administrative costs. Fundamental to this change will be the need to ensure the respective administrative burdens and cost on both employers and HMRC must not be disproportionate to the improvement in accuracy cited in the discussion document as flowing from a move to RTI in April 2012.

Whilst we acknowledge that the decision to move to RTI has already been taken, we remain concerned about the potential cost to employers of ‘RTI’ and whether HMRC systems are sufficiently robust and accurate, and associated helplines are adequately resourced and trained to support this move in just over a year's time.

NPS was only implemented in June 2009. At that time, this was a significant change for HMRC in that each employee moved to a single computerised record for employment income purposes. Since then the NPS has presented some real challenges and we would keen to hear not only HMRC's view on whether those challenges have been sufficiently addressed but those of the National Audit Office (NAO).

The NPS is still relatively in its infancy and needs to be not only working to maximum efficiency but also trusted and recognised by taxpayers and practitioners alike before embarking on what will be another major IT project for HMRC. The 2010–2011 end of year process will be key to establishing confidence in this system.

However, the need for confidence in HMRC's systems is much wider than getting the NPS to work as intended – it includes everything that taxpayers and practitioners associate with ensuring that the UK's PAYE system is able to do what it is supposed to, which is to ensure accuracy in deducting the right amount of tax and NIC in-year and not, which has happened in some cases, some eighteen months after the tax year-end.

Of equal importance will be that online filing of forms can be done easily by all employers and that all data submitted on such forms is processed quickly and accurately by HMRC onto the NPS.

Chartered Accountants Ireland is fully supportive of the ongoing process to modernise communication methods with HMRC via online methods or e-submissions. However as Ministers have decided to proceed with a move to RTI, Chartered Accountants Ireland cites that a review of the NPS is warranted before the added complication of RTI comes into play in 2012.

This review should seek to establish that data on the NPS is working properly, that the NPS has reconciled all the data it holds and can consistently produce accurate tax codes and timely year-end reconciliations.

Source: Chartered Accountants Ireland www.charteredaccountants.ie