Employment Tax Expert

HMRC has said it will stick to a plan to introduce a ‘real-time’ pay-as-you-earn tax system by 2013, despite concerns from employers and payroll software companies that the timetable is “unachievable”.

As part of a plan to modernise PAYE, which was introduced in 1944, employers will send information about tax and national insurance they deduct from employees’ wages to HMRC when they are made – rather than at the end of the tax year as happens now.

The current system causes overpayments and underpayments of tax because some information is out of date.

RTI timetable

Q: When will it happen?
A: Employers and pension providers will begin to use the RTI service during April-October 2013. All employers will use the RTI service by October 2013.

Q: How can employers be sure it will work?
A: HMRC will pilot RTI with volunteer software developers and employers and pension providers for a year, starting in April 2012.

Q: How can employers be part of the pilot?
A: Plans for the April 2012 pilot are already well advanced and no additional employer volunteers are needed. However HMRC are looking at how to bring more employers onboard later in the 2012-13 tax year.

Q: As an agent who files PAYE submissions for a number of employers, do I need permission from my clients before I could take part?
A: Yes. An agent would need to have the agreement of the client employer.

Real-time earnings information could be sent to HMRC automatically using payroll software via the BACS payment network. The new system is expected to be working October 2013.

In a response to an HMRC consultation in December last year, three quarters of respondents who had a view on the proposed timetable for introducing real-time PAYE thought it was “UNACHIEVABLE”.

But in a summary of responses to its consultation document on real-time PAYE information HMRC said the timetable for the introduction of the “universal credit” in 2013 to replace many benefits and tax credits meant “there is no flexibility in terms of the ultimate go-live date of RTI.”
which is quite frankly ridiculous.

To help smooth employers’ transition to real-time earnings information HMRC said it would “align its employment records with those of the employers”, hmmmmm and that should be interesting to witness.

Software suppliers told HMRC in the PAYE consultation that the proposed timescale did not allow sufficient time to develop and test products in time for to be ready by April 2012, but did they listen ………….?

In a concession to software companies, HMRC has said that not all software products would need to be ready for real-time PAYE by April 2012. Instead, software products will be tested for one year – starting in April 2012. Software suppliers and employers can volunteer for the scheme.

Karen Thomson, associate director of policy, research and strategic visibility at the Chartered Institute of Payroll Professionals (CIPP), said the trial of the payroll software should flesh out any “anomalies”. Employers who make payroll errors under the new system, such as telling HMRC the wrong hours worked by an employee, or the wrong leaving date from a job, could be responsible for an individual losing their benefit entitlement because the Universal Credit will rely on PAYE information, Thomson said, so a sysytem that 3/4 of respondents thought was being rushed and has a major impact on benefit entitlements, has simply not been thought through and will crash and burn if the existing timescale is pursued

HMRC has warned Employers about silly mistakes on their PAYE/NIC/Payroll end of year forms

In 2009/10, more than 500 PAYE forms incorrectly claimed to employ A N Other, 128 staff were entered as Mr, Ms or Mrs Dummy, and 40 employees had apparently reached the grand old age of 200.

Nearly 600 employees had surnames that included the letter X, while 75 had the surname ‘casual’. Other surnames included ‘worker’ and ‘student’. A large number of employees were simply referred to as ‘unknown’.

Jim Harra, director of customer operations of HMRC, said: “Most employers get their PAYE returns right. The few who do not cause problems for their employees, for example, incorrect deductions of tax.

“Around 80% of errors in employee data are due to an incorrect name, date of birth or national insurance number – straightforward information that can be collected and checked quite easily.

“So, whether employing ‘Mr or Mrs J Smith’ – or even ‘Mr or Mrs A N Other’, please use the full and official name on PAYE paperwork.

“First names are very important, especially for common surnames. We really want employers to check that they are sending us the right details for all their employees, to make life easier for them, HMRC and their employees.”

and just remember the stick that goes with is message is that of PENALTIES, you have been warned

From 6 April 2012 HM Revenue & Customs (HMRC) will be able to ask employers to pay a security where there is serious risk that they won’t pay over their PAYE tax deductions or Class 1 National Insurance contributions (NICs).

so why have HMRC has been given this new power:

According to HMRC businesses have repeatedly told them that they resent the unfair advantage gained by those who don’t meet their tax obligations. HMRC have stated that they are determined to pursue those who won’t pay, to make tax fairer for all. This employment tax expert is a bit more cynical, seeing will be believing as I for one am sick to death of companies going under and then phoenixing again the next day, week or month

HMRC already have the facility to ask for a security for VAT, insurance premium tax (IPT) and environmental taxes, so why has it taken so long to sort out PAYE/NIC?

The required security will usually be either a cash deposit from the business or director – held by HMRC or paid into a joint HMRC/taxpayer bank account – or a bond from an approved financial institution which is payable on demand.

HMRC have stated that they will use securities to tackle the handful of employers who deliberately try to defraud the government. These employers:

deliberately choose not to pay
engage in phoenixism – this is where a business evades tax by becoming insolvent and then sets up a new company the next day to continue trading
have no qualms about building up large PAYE or NICs debts, including penalties
do not respond to HMRC’s attempts to contact them

These employers will have deducted this money from employees’ pay packets under the pretext of paying their employees’ income tax and NICs.

HMRC will calculate the amount of the security on a case by case basis – depending on the amount of tax at risk, the previous behaviour of the employer and other risks. Those being required to pay a security can appeal against this decision.

As with VAT, if an employer fails to provide the security for PAYE or NICs, HMRC can prosecute them. The sanction is a fine, not a custodial sentence.

Traditionally HM Revenue & Customs (HMRC) has notified individuals of their National Insurance number for the first time by sending them a plastic National Insurance number card.

Last year, as part of the Government’s Spending Challenge, the Chancellor announced that HMRC would stop issuing National Insurance number cards and send letters instead (saving £820k a year).

HMRC stopped issuing replacement National Insurance number cards in October 2010. Since then, if you ask for a reminder of your National Insurance number you get a letter confirming it instead.

From July 2011, HMRC will stop issuing cards to adults. If you’re an adult and need a National Insurance number for the first time, you will receive your number on a letter from the Department for Work and Pensions (Jobcentre Plus).

However, if you are approaching age 16 and are eligible to receive a number automatically, you will still be sent a National Insurance number card. This will continue until later in the year.

Millions of people will still have a National Insurance number card. As the cards are phased out, there will be growing numbers of people who will have a letter instead. If you are an employer you will need to bear this in mind when taking on a new employee.

You do not need to have a National Insurance number card – it is your number that is important.

HMRC have stated that they are looking at problems that employers are having filing forms P11D on line. Why on why can’t they get their IT issues sorted out, it happens every time at a major filing date