Archive for the ‘RTI’ Category

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Three. Probably.

January 15, 2014

A search on “open consultations” in the category “HMRC” on gov.uk today tells me there are three open consultations.  I’m not sure I believe them after the shenanigans I reported on in my 7th January post (customer service tip: if someone tells you a site isn’t working, the least helpful response is “I don’t currently see any technical problems…”) but let’s roll with it.

The three are:

Real time information: legislative changes.  Opened 29th November (so why didn’t it show up when I searched on the same terms on 7th January?) and it closes on 24 January.  Incidentally, wouldn’t it be really, really helpful if you could search on closing date on gov.uk?  Or at least that you could tell from the search results when the consultation closes and didn’t have to click through to find out?

Onshore employment intermediaries: false self-employment.  Opened 10 December, closes 4 February.

Assistance with electronic filing of VAT returns.  Opened 20 December, closes 14 February.

So let’s start with the Real Time Information (RTI) one.  RTI, in case you didn’t already know, is the PAYE equivalent of Universal Credit – it’s the New! Improved!  All-singing!  All-dancing! method of making sure that Universal Credit will work because the government will know, from timely information from employers, who has worked where and when, so people will – perhaps, if it all works, fingers crossed – finally be able to dip in and out of paid work without screwing up their benefits for six months.

But from an employer’s viewpoint, it’s a royal pain.  You have to report payments to employees when you make them, not at the end of the month or quarter or year or whenever you can stop to draw breath.

There’s little point looking at the actual consultation, because this is one of the Finance Bill consultations – in other words, the policy has already been decided and we’re not being asked for our opinions on whether it’s a good idea or not, just for technical comments on whether or not the regulations that have been written will actually work as described.  And I don’t really feel like doing the government’s unpaid copy-editing for them this morning so we’ll skip that.

There are a few interesting things we might want to think about, though.

First of all, the TIIN (surprise!)  They aren’t publishing a TIIN with this because they’ve already published one.  In fact they’ve published two, one for the penalty regime here and one for the actual policy change.

The one for the penalty regime says that there will be no actual exchequer impact.  In fact the government says it doesn’t expect to get any money in from these penalties at all, or at least an amount which shows up as “nil” on a TIIN.  If memory serves, that’s something like a quarter of a million threshold (grateful if anyone can confirm or amend this figure please?)

That’s a good thing, of course.  The point of penalties is to change behaviour, not to collect money.  The idea is that people should make the change to RTI and get used to sending the same information they would always have sent, just a bit earlier and in a different way.  I can see two problems with that.

First of all the level of the penalty.  It needs to be a “smacked wrist” amount – enough that you know not to put your hand into the fire but not so great that your parents get done for child abuse.  So if you’re a small business with up to nine employees, it’s a hundred quid.  Enough to make you want not to incur it, but not enough (one hopes!) to bankrupt you.

But look at paragraph 16 of the condoc:

16. Regulation 67I sets the size of the late filing penalties as follows:

 £100 for schemes with 1 – 9 employees;

 £200 for schemes with 10 – 49 employees;

 £300 for schemes with 50 – 249 employees; and

 £400 for schemes with 250 or more employees.

If I have 300 employees on the average wage of £26,500 then I’m paying out over half a million in wages every month (£26,500 x 300 / 12 = 662,500).  Now, in comparison to £662,500, is £400 a “smacked wrist” or is it, well, peanuts?  An amount which it might very well be worthwhile my incurring so I can sort out my RTI submission at my own pace?

In other words, I think they got the gearing of the penalties a bit wonky.  But it’s too late now, we’re not being asked to comment on that.

Secondly, as I have commented before, there’s not a great deal of point charging “smacked wrist” penalties if you don’t actually go out and collect them, and is HMRC now committed to sending someone round to knock on the employer’s door if they incur a £100 or £400 penalty and explain to them how it arose and, more to the point, what they can do to avoid incurring another?  Otherwise I think that “exchequer effect – nil” may turn out to be, shall we say, optimistic?  Or should that be pessimistic?

And finally, what about the equalities impact?  I said in my response to the consultation on the actual policy that I was worried about the impact on “care and support” employers, which is HMRC jargon for people who have employees but who aren’t businesses.  People who employ nannies, for example, or, more worryingly, people who are given a “care budget” instead of a home help and have to get on and organise their own support package including paying their carers and working out the tax due on their pay.

In the TIIN for the actual policy it says under equalities impacts that

Care and support employers will also have the option to file RTI on paper, and those wishing to use this option will report RTI from April 2014. This date has been deferred from April 2013 in line with customer feedback, to allow more time for HMRC to thoroughly test the new paper forms and guidance with customers who will use them.

So.  We’re not publishing another TIIN.  We’re not updating the equalities impact, then?  Has there actually BEEN any testing of the impact on care and support employers?  Are they happy, or at least confident they’ll be able to comply?  Does anyone know?

Sigh.  I’d write to my MP again, but it’s Nick Clegg and I think he’s probably getting sick of hearing from me about inadequate government equality impact assessments by now.  Over to you.

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Forty two

September 11, 2012

How many employers are there in the UK?

Well, the Federation of Small Businesses says there are about four and a half million small businesses in the UK and about a quarter of them are employers. So let’s suppose there’s one and a half million, plus another few thousand of the very largest businesses not covered by the FSB.

HMRC makes it rather more: 2,351,620 to be precise, if you add up the figures for employers on the timetable for rolling out RTI (figure 6 on page R25 of their latest annual report.)   This seems more plausible: there are nearly thirty million people in work, after all.  And HMRC ought to know: they’re the ones who are implementing radical changes to the way that all employers have to operate the PAYE system, moving them over to RTI.  So they have planned for the numbers in their table:

  1. Control group and first stage pilot.  Around 320 employers.
  2. Pilot: around 1300 employers
  3. Extended pilot: around 250,000 employers
  4. Main migration: around 2.1 million employers.

Please check my adding up, but I make that around 2,351,620 employers altogether, right?

I’m a bit worried about that.  Principally, that it’s all a bit quiet, and those two million three hundred and fifty one thousand, six hundred and twenty employers aren’t going to know about, let alone be ready for, RTI coming at them like a steam train.  After all, the government has abolished its own advertising agency and radically cut down the amount it spends on getting information to us.  And, serendipitously, it seems I’m not the only one, because Steven Timms asked David Gauke how much money HMRC had set aside to publicise the changes

The answer seems to be, well er… none, actually.

Or rather, communication is part of the overall cost of RTI, which the Minister helpfully tells us may amount to £108 million.

Do the math with me here. Counting just the small businesses covered by the FSB (and not the large ones where, so far, most of the education and support has been targeted) and not including the people who have employees but who aren’t businesses, like people with nannies and people given budgets and told to go off and employ their own careers…

The smallest number of businesses likely to be affected by RTI is, well, for the sake of the mental arithmetic let’s say that a quarter of the FSB’s four and something million amounts to ONE million employers.

On whom HMRC can spend 108 million quid?  Ok then – lets say changing HMRC’s computer, building the free software for micro business employers and doing all the other techie stuff only came to 8 million. It won’t, is my guess, but you see where I’m going with the numbers.

That gives HMRC 100 million to spend on education and communications for 1 million businesses.

A hundred quid each?

That won’t get you one person from each business going on a course, or even having a couple of phone calls with HMRC’s helpline. Its… It’s peanuts.

Divide that theoretical hundred million by the HMRC number of 2,351,620 and you get … £42.

(Well, OK, £42.52, but still.  You really couldn’t make it up.)

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RTI is coming. Eep!

September 6, 2012

You may remember that, in 2010, the idea was floated that we should update the pay as you earn system.  Why should employers have to calculate how much tax to deduct from wages and salaries?  Wouldn’t it be neat if you could build some kind of machine – or, OK, some kind of app – that would work it out?  Plug that into the banks, and the employer could just transfer your whole salary to you and the bank could siphon off the bits of that money that go to HMRC using the magic machine/app.

The newspapers put paid to that one pretty quickly!  And, frankly, would you trust

  1. government IT procurement and/or
  2. banks

as far as you could throw them?

So, er, no.  Or indeed “hell no!”  But the PAYE system was still in dire need of updating – so then there was RTI.

RTI, for the uninitiated, stands for “real time information” – the “minor” change to PAYE that means employers will have to tell HMRC what they’ve paid when they pay it (and not six months or a year later).

Oh, and there’s an administrative burden “saving” to employers, because they won’t have to fill in P60s and P45s at the end of the year or when people change jobs any more; all the information will go seamlessly to HMRC when the salary payment is made.

Which, if you’re an employer with a payroll that’s computerised and a who pays via the bank, well, might actually be true.  The impact assessment thought there might be a billion quidsworth of savings.  Particularly if you don’t, er, quantify any costs!

RTI is, in fact, already here – for the small number of employers taking part in a pilot scheme.  And more employers are being added – did you know that?  And ALL employers will (or at least should) be in RTI by autumn of next year.

OK.  So far, so good.

But there’s a certain amount of, what we might politely call, “making it up as you go” involved here.  Taxation magazine pointed out on 22 August  (sorry, it’s behind a paywall) that there will be problems involved in paying

  • Casual workers
  • People receiving tips via a tronc

and various other special cases, because the RTI return has to be made at or before the time of payment.

So it’s Saturday night and you’re a pub landlady and your barmaid just called in sick and you call the two students who work odd shifts for you on standby.  They’re going to expect their wages in their hand when they go home at the end of their shifts, aren’t they?  So are you going to spend your night filling in their RTI details on your laptop so you can make them a legal payment… or are you going to go cash in hand and take your chances?

So you’re a restaurant and the tips go into a jar and the head waiter divvies them up on a Saturday night.  Is he really going to sit down and enter all the details of the payees into his laptop before he goes home?

But more worrying to me is the abolition of the Simplified Deduction scheme, which was known as the “nanny” scheme – a simpler set of deduction instructions for people who found themselves employers but who weren’t actually businesses, like people who directly employ a nanny or a cleaner (rather than paying them via an agency).  This one worries me a lot, particularly because of trend in providing services to people with special needs because of age or disability by giving them a budget and asking them to arrange their own services.  These are not people who will be immediately comfortable with running a PAYE scheme to pay for the carer who gets them out of bed in the morning.  In the equality section of the RTI TIIN published in March this year it said:

Care and support employers are individuals who employ carers to provide services to a disabled or elderly person in their home. This group of employers will join RTI from April 2013 and HMRC will offer them the option of monthly paper filing of information. They will also be able to use HMRC’s free updated Basic PAYE Tools which are available for all employers who employ nine or fewer employees, allowing them to submit RTI via the internet. HMRC has also provided funding to the Low Incomes Tax Reform Group (LITRG), to help them develop online guidance for care and support employers.

which, frankly, looks to me like an enormous exercise in Missing The Point Entirely!

In this context then you can see that I might not be too fussed about a consultation document that is concerned with penalties to be imposed for failure to comply with RTI.  In my view it’s absurdly premature to talk about penalties for failure to comply with a scheme that you’re making up as you go along.  Introduce it, work out the kinks, give it a couple of years to see what the compliance rate looks like… and THEN see what sanctions you need for the few who play fast and loose with the system.

Nevertheless, that isn’t the question being asked.  But here’s what I said in reply.

This is an individual’s response and will also be published, with commentary, on my blog, http://tiintax.com. I have followed the question schedule set out on page 35 of the consultation document.

Q1. Do you have any comments on RTI and error penalties that will help us support businesses and promote timely filing under RTI?

I think it is wholly premature to be talking about penalties at this stage in the process, when there are enormous outstanding questions about how the scheme will operate at the margins. At the moment HMRC should be concentrating its resources on “support” rather than punishment. “Care and support” employers, in particular, should be exempt from penalties except in cases where a criminal penalty could be sought – in other words where the department can produce evidence of deliberate default rather than failure to understand and apply the system.

Q2. How best can we support employers in understanding their obligations under RTI and implementing the new system?

Not via penalties! An advertising campaign, dedicated support teams, face to face training and assistance – all the kind of support services that HMRC used to be able to provide via its local office network, its employer support teams and its advertising and comms team. Otherwise there’s a serious risk that micro employers will move to cash in hand payment by default.

Q3. Is there a better or simpler way, than banding by potential filing defaults, of recognising the size of the employer but also the amount and regularity of the information to be supplied under RTI?

I would make an exception for cash payments of less than £X, where X is something like the minimum wage x say 5 days and the employer is a micro business. So the pub paying its casual staff on a Saturday night has a couple of days grace to get the RTI return made without being hit with an automatic penalty (but would still be hit if the RTI information isn’t provided within say a week) – so the crisis can be covered and RTI dealt with as part of the normal working week even if it is a couple of days behind.

Q4. Are there particular adjustments that should be considered to take account of more frequent payments?

It depends really on whether your aim is to make everyone move to electronic submission and payment. Someone who is reporting on paper should be allowed to make monthly returns – but presumably you won’t want large employers to make paper returns mischievously. So this is as clear a case as I can envisage of a case where the government’s own policy to exempt micro businesses should be followed.

Q5. Should a penalty be charged as soon as a return is late or would employers prefer penalties to be charged later, perhaps each quarter?

Um – “prefer”????? What are we talking about here? If we’re working in a world where you ask people how they “prefer” to pay penalties, isn’t there some kind of presumption that penalties will be routine? And yet I thought it was clear HMRC policy that penalties would be just that – they would be PENAL – and only apply to people actively subverting or avoiding the system, not to people confused by the system or making an honest mistake?

In which case this is a nul question. You don’t get a choice about a penalty! But my preference, in my capacity as a citizen stakeholder, would be for defaulters to be charged penalties as soon as the return was late – if it’s genuinely aimed at getting them back on the right track then they need to know straight away that their actions have consequences.

Q6. Do you agree that only one late filing penalty should apply to each PAYE scheme each month, regardless of how many returns are late that month?

Yes

Q7. Should the RTI late filing penalties include a further penalty if a return is outstanding at the 6 and 12 month points?

No. You ought to be well beyond late return penalties and into corrective action by HMRC at those points.

Q8. What are the benefits and downsides of phasing the introduction of automatic late filing penalties for RTI along the lines set out above?

It’s absolutely vital that late penalties are only applied to the very largest employers and in the case of deliberate default first, and then phased in by size of payroll, not reaching the micro business employer until the system is fully mature. And arguably never reaching the “care and support” employer at all.

Q9. Should consideration be given to including a default that does not attract a penalty along any of the lines set out above?

No. A “default that does not attract a penalty” needs to exist in the system, but this is a case where HMRC shouldn’t be judge and jury but should be required to charge a penalty via a tribunal process rather than automatically. So I would exclude micro businesses from any automatic penalty regime while leaving the option of HMRC taking offensive cases via the tribunal system.

Q10. We would be grateful for comments on the detailed design options set out above. In particular, how should we encourage employers to use the nil return facility where there is no information to be returned? Is any additional incentive or sanction needed over and above the fact that a late filing penalty may be issued if an expected return is not received?

This baffles me, I’m afraid! If RTI is predicated on a return being made whenever a payment is made, how would HMRC know that any payment had been made in a “pay period”? What IS a “pay period” for these purposes?

Example: I’m thinking of taking on a casual employee to do work on my garden. I’d think about taking on a student and employing them as-and-when I have work available. So I might pay them a tenner every week for an hour’s work in the summer, but once every six weeks in winter – but then a one-off £50 when I needed some help lifting and carrying. What would be my “pay period” – or are you assuming that this kind of casual arrangement would be “cash in hand” and not touch the sides of RTI in 99% of cases?

Q11. What are the pros and cons of charging penalties for late filing and late payment at the same time?

It’s one of my pet peeves about the tax system that the two aren’t linked – it’s absolutely no use to anyone to establish a requirement to pay £x, a penalty of £y for not returning the requirement to pay £x… and then never bothering to collect either of them!

Q12. We would be grateful for comments on these models, or any combination of the elements included in the models. We would especially welcome ideas to simplify them, but which still support and encourage compliance with the RTI information obligation.

See comments above on the need to exclude micro businesses. In accordance with the government’s stated policy on the small firms, micro businesses should be exempt from regulatory change unless there’s a really good reason not to.

Q13. We welcome comments on these proposals. (This refers to the changes to the existing late payment penalty model).

It would be in keeping with what I understand of the RTI proposals, as well as a welcome simplification for everyone, if late return and late payment penalties were merged. Why doesn’t the submission of a return also trigger the submission of a payment? Employers should no longer be able to use their PAYE scheme as a cash flow tool. It’s not their money – it’s their employees’.

Q14. Should we consider charging late payment penalties quarterly?

As above, the late payment should trigger the penalty; the penalties shouldn’t be “banked”… and anyway, they should be merged with the return penalties.

Q15. Should we consider allocating employers to a quarterly stagger period for both late payment and late filing penalties under RTI?

No

Q16. Are there any particular easements that we should consider for new employers?

You need first to provide information, training and support. Until those are in place – and I don’t believe they are at present, and I don’t believe HMRC has the resource to provide them on a continuing basis – then no penalties should be chargeable.

Q17. Do you have any views on applying interest to late payment and late filing penalties under RTI?

I think penalties should be clear, simple and immediate. And collected. There should be no need to apply interest if you apply active collection methods.

Q18. Do you have any views on applying a late payment penalty as well as interest where further sums become due for a period?

I don’t think it’s a good idea. There should always be the possibility of drawing a line under the past and moving on. So if someone fails to make an RTI return and payment it should be clear to them they’ll be charged a proportionate penalty and it should be collected immediately – and if possible (depending on the “payment period”) before the next return and payment are due.

Regards