HMRC in Meltdown

For once I’m not writing about the environment or the construction industry, but an issue that will affect virtually everyone. I had a long conversation with my accountant yesterday about the implications of Her Majesty’s Revenue and Customs’ (HMRC) new requirement for real time reporting of payroll taxation.

From April all businesses must report to HMRC the payroll deductions and payments made to all employees on the day that the payments are made! This is to be known as Real Time Information or RTI.
Back in 2010, HMRC told Channel 4 News that over 40 million UK employees pay tax through PAYE. That means that presently UK employers will submit 40 million annual returns during the 6 weeks following the end of the tax year. From April, UK employers will submit 40 million RTI returns on the last Friday of the month every month!
HMRC is of course introducing a new IT system to allow all the RTI to be submitted online. But remember back in 2008 when HMRC mandated online filing for personal tax returns? On the filing deadline day HMRC’s servers crashed with just 104,000 people accessing the system, leaving 10,000s unable to do so. Do we really believe that just 5 years on HMRC have developed a system which will be able to handle a 400 fold increase in submissions and do it every month reliably?
Also woe betide any employer who makes a mistake in either the calculation or the payment amount. Penalties will apply immediately for any inaccuracy in the RTI reporting. Businesses previously had the opportunity to correct any mistake at the next month provided that the end of year returns were correct. Back to the 2010 Chanel 4 News piece and HMRC also reported that the were 5.7 million mistakes in PAYE calculations and payments. This would be an average of 475,000 mistakes per month, clearly a nice little earner if penalties were applied to each one under the new system.
However, note also that last year HMRC left 1 million letters unanswered. If actions on payroll errors are going to be piling up at a rate of around 1 million every two months, I wonder how long it will take the RTI system to collapse under the backlog? Does anyone want to take a bet with me? I give it six months.

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