RTI: why won’t it balance?
We are now well into the live operation of HMRC Real Time Information (RTI). So far, so good and plain sailing for all employers? Well not quite.
For the majority of employers RTI may well have been plain sailing, but for a large and sizeable number of employers, the phones have not stopped ringing.
2013/2014 is the soft landing year of RTI, with employers supposedly not to be exposed to penalties and fines! Unfortunately a large minority of employers have been pursued heavily in the name of RTI for late payment penalties, fines and threats of interest.
The HM Revenue & Customs Debt Management and Banking division (DMB) have been pursuing employers on a number of aspects:
- Failure to file April submission (even if none were due);
- Underpayments of a Specified Charge;
- Underpayments due to discrepancies of the employer Full Payment Submission (FPS) and the HMRC NPS systems (we thought that was impossible).
Software houses, bureaus, accountants and payroll service companies have been inundated with requests for copies of FPS submission values (they are the same values as on your payroll results that are received each month) and explanations from the same parties as to why HMRC records now appear to be different. The DMB contact cannot provide the employer with that detail, as all they have is a total owing, but an assurance that what they see is what was submitted on the FPS!
Have software & payroll providers got things so wrong? I don’t think so…
After personally checking four separate DMB claimed misbalanced PAYE scheme submissions from April through to June, it is clear that not all is well with RTI. All the detail matched to the payroll result, but somehow HMRC records appeared to show different totals. Fortunately the manual exercise of checking and verifying some of the imbalances helped identify some potential areas where errors appear to be occurring in the HMRC application of the RTI data – payments to leavers features high.
In its annual report to HMRC, the National Audit Office identified some shortcoming in the RTI project as it went live. By mid-May 2013, 10,000 duplicate taxpayer records had already been created with HMRC apparently unable to ascertain the root cause. The system went live without achieving ‘financial accreditation’ with shortcomings identified in relevant system capturing and reconciling data, and payment coming in.
So what is going wrong? Currently the actual answer is unknown although having evidenced a number of individual reconciliation investigations, the following examples appear to be occurring.
Duplicate records – payment after leaving indicator
Originally HMRC claimed that duplicate employment occurred as the employer had used a different Payroll ID, the unique identifier for each employment instance. However, in the cases checked, the Payroll ID match was exact and there had been no change in name or NINO. In a number of cases HMRC appear to create a new additional record where the payment after leaving indicator is set. This then leads to duplication of payment amounts; the total to date from the original pre-leaving employment record and the addition of the totals to date from the newly created record from the payment after leaving.
For example, up to the point of leaving the tax paid was £2,000. The individual then receives a payment after leaving which accounts for an additional £200 of tax (so £2,200 to date). As HMRC have duplicated the employee record, they now have a record with £2,000 plus a new record of £2,200 and expect the total tax owing for the individual to now be £4,200. Yet the tax paid by the individual is £2,200.
Another example that appears to come to light is where an overpayment adjustment is made. The corrective action is to report the corrected year to date totals in the next FPS submission, but this appears to be where it all goes wrong. So the employer has reported that the tax payable is £3,000, but the employee has had a period of unpaid leave which was notified late and therefore the tax payable should only have been £2,000. This is corrected in the next FPS submission, the name has not changed, the NINO is the same and the Payrolls ID matches the previous record. But what appears to have happened (this is not confirmed by HMRC but is a mathematical deducement) is that HMRC now have a record with £3,000 and a new record with £2,000 and therefore think that £5,000 is now owed.
Another employer being pursued by DMB for a Specified Charge underpayment (you have failed to file and you have underpaid) actually had filed all their returns. The EAS was submitted when the gateway opened on 6 April and the April, May and June FPS submission had all been supplied. On investigation it transpired that alignment had not yet taken place and so all the data was waiting.
A major area of challenge for employers and HMRC is scheme transfers – where an employee is passed from one PAYE scheme operated by an employer to another, yet continuous employment exists. Employers will find duplicated records will appear all over the place and masses of double accounting unless they have a means of zeroising the old PAYE scheme values, suitably transferring P45 starter type information to the new PAYE scheme etc.
So what values does software or payroll providers supply on the FPS submission to HMRC? They supply the payroll values – those recorded on the P11 or pay journal that you are provided with each period. Payroll solutions will tell you what amounts are owing this period and to date. If you are paying over the amounts indicated by your payroll then you are on solid ground.
If you have not paid over anything or have attempted to short change the revenue in comparison with the payroll reconciliation amounts, then potentially as an employer you’re in trouble and should change your practice to pay the correct amount.
But do not assume that HMRC DMB know what amount is owing, HMRC have issues and error in their systems and the amounts reflected on the employer dashboard is not necessarily the amount reported on your FPS, it is the amount tallied from the HMRC NPS records.
Many employers are finding that their case is being passed through to HMRC technical for corrective action, and then communication contact between HMRC and the employer appears to go into radio silence.
So is RTI a success – of course it is, but HMRC do need to consider carefully their positioning of pursuing employers appropriately, else they will bring discredit and disaster to the RTI programme.
Director of Payments, Benefits & Compliance Strategies