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HMRC's latest RTI fiasco - is it PAYE-back time?

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Last week it was reported that several thousand employees may have had their tax bills for last year miscalculated by HMRC.

HMRC’s Real-Time Information (RTI) was to have been the process change to end the annual PAYE reconciliation fiasco which, year after year, had sent millions of incorrect tax demands and repayments to employees throughout the UK. The events of last week demonstrate how badly misplaced those high aims were.

HMRC asserts that the millions of incorrect tax demands and repayments, a mess which will take six to eight weeks to clear up, are the fault of employers. We think that’s wrong. Nobody is suggesting that every employer has faultlessly completed every single aspect of RTI. But, as the accounting profession and employers’ groups have been warning HMRC for months, RTI has certain flaws which would undermine the year-end reconciliation process. These warnings have been proved right, so a little humility on the part of HMRC, and a willingness to engage more closely with employers and accountants who have a shared interest in getting RTI right, would not go amiss.

But let’s suppose HMRC is right and the latest mess is all the fault of employers – what then? That raises fundamental questions about RTI itself. If, despite their best endeavours, employers (including some very large organisations with huge payrolls, dedicated staff and great experience) can’t get it right, then what was HMRC doing in introducing a system which even the best-intentioned and experienced employers can’t get right every time?

As the UK government moves relentlessly towards the mandatory (subject to a few exceptions) use of digital technology for all citizens’ dealings with the state, we all deserve better than this – and the government has an obligation to deliver it. With HMRC’s IT systems assuming ever greater importance in both taxation and benefits delivery, digital disasters damage the economies of households who are powerless to do anything about it. One of the key drivers for RTI was the introduction of universal credit. That is designed around each claimant having their own benefit month rather than a standard aligned month (such as the last day of the month). So information is needed on a daily basis to ensure that UC is properly delivered. An error in one day in reporting by an employer can have a big effect on a person’s credit entitlement. So lots of the problems with RTI (not all by any means) are linked to the requirement of Universal Credit.

The irony is, of course, that Universal Credit has itself been delayed and has not yet been properly implemented. There is a cross-government issue here. Questions need to be asked and answered if confidence is to be restored in ‘Digital By Default’ and Universal Credit.

HMRC will shortly be given the power to recover unpaid tax direct from people’s bank accounts. As in all their dealings with every single citizen, HMRC has an obligation to get it right. In the light of the latest PAYE problems, we believe that this facility should not be implemented. Questions need to be asked and answered before HMRC is allowed to help itself to citizens’ money.

(Adapted from the firm's weekly tax briefing.)

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