THE SIMPLIFICATION OF the tax system is fast becoming a crusade for the chancellor.
A few weeks ago, a merger of the National Insurance and income tax systems was a holy grail for simplifiers, who invested their faith in a union but didn’t think it would happen in their professional lifetimes: now, it seems almost probable.
But long before this is realised, less radical – but equally important – reform is worrying the boardroom round tables now.
The roll-out of real time PAYE information/reporting (RTI) is due to begin in April 2012 and will be fully completed by October 2013. But this has wider ramifications than other recent technological changes.
The government’s flagship welfare reform, the Universal Credit, will depend on the systems. A failure to complete this quest will cause distress throughout the country, and not just in finance departments. But the deadline, imposed for political reasons, is a tall order at best and could even require a culture change throughout the profession and government.
Under the proposals, payroll information will be provided to HMRC automatically whenever employers run their regular processes, instead of at the year end.
The accounting community is not convinced the reforms can be achieved on time. HMRC conceded that many responses to its consultation on the implementation of RTI expressed concerns about the timetable.
The Chartered Institute of Taxation went further. Anthony Thomas, CIOT deputy president, said the detail provided in HMRC’s consultation, issued at the end of February, “gives us significant cause for concern”.
Unlike with the iXBRL fiasco, this is not just an issue for payroll software developers.
HMRC will have to implement its own database in the first instance by April 2012. The companies charged with building this database, Capgemini and Accenture, will not know the parameters of the job at hand until the end of this month.
Paul Aplin, chair of the ICAEW technical committee, said that if it was not implemented properly there could be a repeat of the PAYE crisis, which affected 15 million people and left an estimated £2bn of tax underpaid and £3bn overpaid.
He agreed that the timetable is “very tight” and questions “whether it is realistic”.
Moving the deadline back, a route the government took with iXBRL several years ago, would have serious political ramifications.
Work and pensions secretary Iain Duncan Smith has put much stock into the Universal Credit, which is a single benefit to replace six income-related work-based benefits.
This is to be phased in by 2013, and a failure to meet this deadline will be politically embarrassing. Of course, this raises another issue in itself – a failure to implement RTI properly could result in not only another PAYE crisis, but a benefits crisis too.
Such a sensitive situation is not helped by a culture in which the Department of Work and Pensions does not rely on HMRC to provide it with the correct details of an individual’s date of death.
As well as this, a report from the All-Party Parliamentary Group on taxation last week claimed that the Revenue still has a problem with matching information it receives from employers to specific individuals. Adam Marks, the report’s author, said that there had been a reduction in resources allocated to deal with this problem.
There had been an increase in open cases that culminated in HMRC writing off much of the tax owed last year. There is no way of knowing whether the endemic problem has been rectified; if it hasn’t, this backlog will be exacerbated by the monthly reports coming in with RTI.
But Aplin believes that the taxman is “very conscious” of the need to improve data quality.
The focus is inevitably on HMRC failures, but there have been successes: few problems on the 31 January self-assessment deadline day for several years; smooth processes of end of year returns; and more communication with the profession, even in the RTI project.
Instead of only looking at HMRC, culture change is needed throughout to make this deadline work: “Everyone needs to understand that clean data in means clean data out.”
Inputting unclean data will continue to cause problems and this means employers must move away from a tendency to provide substitute NI numbers, for example.
In the grander scheme of things, in common with all parts of the tax system, RTI could be affected by the potential merger of NI and income tax. Although this would, on the surface, unburden the system, there may need to be a redesign to incorporate potential reforms.
Any potential merger of NI and income tax is a long way off – but RTI is, perhaps unfortunately, not. It will create headaches for finance departments but, more importantly for the government, any errors will harm not only people’s pay packets but their benefits too.
A failure to get this right would increase the chances of the coalition facing its last supper.
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