HMRC’s PAYE prescription is the wrong remedy

PAYE has had its fair share of problematic headlines which will no doubt have caused some major headaches within HM Revenue & Customs. HMRC’s solution? To make substantial changes to PAYE, gathering real time information for tax and Universal Credit purposes through the Bacs payment system.

The ‘Real Time Information’ (RTI) concept will collect information about tax and other deductions automatically each time employers run their payroll. This information will be submitted automatically to HMRC at the same time the employees are paid.

The purported aim is to reduce administration costs and improve the accuracy of PAYE. However, this prescription won’t ease any headaches.

Instead of reaching for a quick remedy, HMRC needs to consider the original root of the pain. You could argue that the recent failings of the long-established PAYE regime have been due to maladministration by HMRC and their inability to adapt the system in relatively modest ways to cope with changing circumstances, and that these issues need to be addressed first.

Considering HMRC’s track record with reconciling PAYE and National Insurance Contributions annually, it doesn’t instil confidence that that they would be any more successful in clearing the much greater number of reconciliations potentially arising on a monthly or weekly basis under RTI.

HMRC is planning that large employers use the new system from January 2013, allowing very little time for software vendors and in-house developers to upgrade their payroll systems. This will expose employers not only to extra costs but also to the risk of being left non-compliant – I refer you back to the purported aim to reduce administration costs and improve the accuracy of PAYE.

Of greater concern is that the new regime will not have been piloted for an entire annual cycle to prove that it works and to identify teething troubles and other questions that would arise. If such a project is undertaken it surely needs to be approached at a more cautious and measured pace.

No other country has anything comparable with the Bacs system, nor has any attempted to introduce any tax reporting system equivalent to RTI. HMRC is therefore entering uncharted territory; where project failure could further undermine confidence in the PAYE system, with devastating effects on revenue flows to the Exchequer and consequential damage to the international credibility of the UK. It should be considered that these risks outweigh the potential rewards of RTI.

HMRC has openly consulted on the RTI proposals for which ICAS lodged a submission. Let’s hope that they listen. Proceeding on the basis suggested would risk the health of the project; creating a strong possibility that it might share the embarrassing and costly fate of many other failed public sector IT schemes in recent years.

Donald Drysdale is assistant director of Tax at ICAS and a Chartered IT Professional