HMRC foregoes £950m in PAYE amid system overhaul

AROUND £950M IN PAYE PAYMENTS have been foregone by HM Revenue & Customs amid the introduction of real-time PAYE reporting – the biggest shake-up to the system in 70 years – the National Audit Office has revealed.

Much of the abandoned collections fall within a seven-year period and were caused by a decision to raise the tax threshold over a three-year period and HMRC’s inability to at the time to work through a backlog of unresolved tax cases within the legal timeframe.

The department stressed there is no link between its attempts to stabilise and operate PAYE more efficiently and the introduction in April of real-time information (RTI).

Advisers, though, are concerned HMRC’s staff and systems were stretched to meet the March deadline to conduct a normal PAYE service, in readiness for employers reporting payments as and when they occur, rather than at the end of the financial year.

The NAO noted the implementation of the system cost less than expected, but a backlog of unresolved claims meant approximately £953m was foregone, although neither HMRC nor the NAO gave concrete figures.

HMRC has successfully introduced and now operates the RTI system, but the NAO said limitations in the pilot – notably 66,000 employers testing the system in the run-up to its launch, rather than the expected 250,000 – means some areas of the system require further testing.

Baker Tilly tax partner David Heaton said: “Given the number of incorrect tax codes that have been issued over the last three months, it must be doubted whether the interface is working as hoped.

“The NAO also questioned the lack of accreditation of the financial and accounting systems supporting RTI. It seems RTI went live in the knowledge that HMRC was expecting to have resolved ‘identified financial design issues’ only by 31 October this year. How serious a problem this might be is emerging slowly as employers and payroll operators’ comments on incorrect HMRC records of payments begin to mount.”

A spokesperson for HMRC said: “This was caused by a combination of events – widely reported at the time – that affected the tax years between 2003 and 2010. The figures are estimates, and neither HMRC nor NAO can give actual numbers for tax foregone and taxpayers affected.

“When these problems came to light in 2010, we promised to clear all outstanding ‘open’ cases by the end of 2012. We have delivered on that promise, clearing over 30 million cases over the past three years and bringing the PAYE system up to date.”


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