Business Finance: Dean Harris reviews the launch of ‘real time’ tax returns

Dean Harris, Head of Tax at KPMG in East Anglia

Dean Harris, Head of Tax at KPMG in East Anglia - Credit: Archant

A leaked email revealed that 5million UK workers face wrongly calculated tax bills due to the transition to Real Time Information for PAYE data.

What went wrong and how can firms protect themselves?

The adoption of Real Time Information (RTI), which is the move to reporting pay data to the tax authorities in real time rather than annually, is the biggest shake-up to employment tax since the 1940s.

On the whole, HMRC have done a good job in getting nearly all employers reporting information in real time. But there are some fairly major issues with the IT and HMRC systems and fixing them will require significant investment. These systems issues are causing “employer errors”, which is where the data supplied by the employer is not processed by HMRC systems as expected.

Sometimes this can be due to bad data being supplied by employers, but equally it can be due to errors in HMRC systems which were not designed to deal with all the complexities of PAYE. The upshot for employers and employees is they find PAYE tax and National Insurance Contributions do not match those calculated by HMRC, despite their providing the information as requested.

As a result, they now face uncertainty over whether they have paid the right amount of tax - which can be damaging, particularly for smaller businesses where cash-flow is king.

As RTI is an integral element of delivering the Universal Credit, it is crucial that it operates effectively to ensure it doesn’t go wrong.

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There needs to more and quicker feedback to employers’ agents and software developers on issues as they arise. HMRC recently wrote to all those employers who they believe they are in dispute with over previous reconciliations and similar RTI issues. Employers have been told that it would be three months before a response could be expected. But my advice to any businesses who believe they are in dispute with HMRC on an RTI issue and have not had a letter, is to get in touch with HMRC as soon as possible to ensure that that their dispute is correctly logged.

Like many public bodies, HMRC is under enormous pressure to deliver ‘more for less’ and budget for additional investment is a real challenge. This is a very important initiative and investment is crucial if it is to succeed and certainly current issues are addressed and fixed before plans to extend the Pay as you Earn system to encompass benefits in kind (such as company cars, healthcare etc) are implemented.

: : Dean Harris is head of tax for KPMG in East Anglia.