The All-Party Parliamentary Taxation Group have just published their third report, this one entitled ‘PAYE at the Crossroads’. It raises serious doubts concerning HMRC’s implementation of Real Time Information by October 2013.
The APPTG Report acknowledges that the introduction of RTI is undoubtedly the biggest change to PAYE since its introduction back in 1944. However, RTI “should be regarded as a stepping stone, not the final destination.”
In other words, RTI is the “first step in a move to Centralised Deductions” – the calculation by HMRC of an employee’s PAYE income tax and Class 1 NICs at the time of payment. The Report sees a move to Centralised Deductions as “the big cross-governmental prize that this new PAYE system offers for policy delivery across government.”
So how does the APPTG Report reckon HMRC’s move to implementing this “first step”?
The Report outlines the following problems:
- Implementation timetable: the Report expresses concerns “that it is potentially undeliverable and could reduce the level of RTI’s integration with payroll practice”.
- HMRC’s business case: the APPTG “is concerned that HMRC has underestimated RTI’s cost and overestimated its benefits”.
The RTI implementation timetable is driven by the requirement for all employers to submit RTI data to HMRC each time employees are paid to facilitate the introduction of Universal Credit from October 2013. The Report says it is “concerned that the current RTI timetable for mass migration is too tight.” A contrast is drawn in the Report between the time allowed for the migration of employers into auto-enrolment – over five and a half years; with the time allowed for the migration of all employers into RTI – an 18 month period.
The Treasury Select Committee has already acknowledged that ‘the history of large IT projects subject to policy-driven timescales [such as that driving RTI] has been littered with failure’.
The Report also sees a major problem for smaller businesses in both understanding how RTI works and their new obligations about submitting the necessary data to HMRC each time they pay employees. This is seen as especially a problem for the “digitally excluded”, i.e. those with poor computer literacy, who may be required to outsource all their RTI reporting obligations as the only way of complying.
The Report also found a “general lack of awareness of RTI”; research indicates there is “still a lack of clarity and understanding in relation to RTI’s initial and long-term requirements.”
There is also concern about the genuine ability of software developers to deliver. RTI requires a significant quantity of software development and HMRC have not taken this into consideration in their costings. The Report states: “We are concerned that the [RTI] timetable does not allow sufficient time for software developers to thoroughly develop their products… Moreover, there has been a lack of certainty in the payroll software market as a result of the move from the Strategic Solution [including the RTI data in with the Bacs payment data] to the Interim Solution* [continuing to use Electronic Data Interchange (EDI) to at least 2016], and general uncertainty over RTI more widely.”
As a result of the above, among other issues, the APPTG Report makes the following recommendations:
- Business needs should be prioritised over the policy deadline for Universal Credit in RTI’s migration timetable.
- The following criteria should be dealt with prior to RTI migration:
- The migration cost and additional administrative cost of RTI are fully understood;
- A strategy for micro-business and the digitally excluded are executed;
- Representatives from the software industry are content with the functionality of payroll products on the market;
- All outstanding payroll issues are resolved and there is absolute clarity about how RTI will work and this has been fully tested by piloting; and
- The time line for the Strategic Solution is fully understood, functional and properly tested.
In conclusion the Report states: “RTI is a step in the right direction, but it is also [in its current form] a step in the wrong direction.”
It remains to be seen whether this latest APPTG Report will affect the RTI timetable; but if the migration into RTI continues as planned the Report does indicate that it may all go decidedly pear-shaped!
*The channels for sending RTI data to HMRC, under the Strategic Solution are Bacs and the Internet through the Government Gateway for those not using the Bacs system to pay employees. The Interim Solution continues to use EDI instead of Bacs whilst also using the Internet as envisaged under the Strategic Solution.