Thu, 2 Feb 2012

HMRC does not understand how people are paid - controversial document reveals concerns over RTI

HMRC does not understand how small employers pay their staff, according to a controversial written submission to the Public Accounts Committee (PAC).

According to HMRC 90% of employees are already paid via Bacs, but its definition includes employers that only use Bacs via an internet banking interface – as many small companies do.

Bacs has been chosen as the strategic option for Real Time Information (RTI) submissions as it is considered sufficiently robust and secure to channel data to HMRC.

But Bacs penetration is actually far lower among small businesses in the UK and these companies employ a total of almost 15m people or more than half the UK workforce.

Among this sector it has been suggested that full Bacs penetration may be as low as 20%.

Ironically, despite HMRC’s miscalculations, lobby groups insist Bacs should be introduced as soon as possible and that any delays could jeopardise the success of the Department for Work and Pensions Universal Credit welfare reform, which relies on RTI data.

Explicit link

In a written submission to the PAC from RTI stakeholders it says: “Central to RTI is the creation of a direct, explicit linkage between net payments from employers to employees and the employer’s declaration of its liability to PAYE to HMRC.

“Our concern is that HMRC’s adoption of the interim solution and the implied delay to the opening of the Bacs strategic channel threatens both unnecessary interruption and uncertainty to small (and medium) UK businesses and the success of the Universal Credit.

“This arises because we believe it is not readily understood by HMRC how small employer payroll is actually paid or the numbers involved.

“Under the interim solution, the internet banking payment channel, which is how small businesses invariably pay their staff, is excluded. The interim solution does not require businesses paying employees via internet banking to link their net payments with their RTI return.

“The key point is that although bank internet payments made by employers to employees are terminated on the Bacs network (and so contribute to the total figure of 90% of employees paid via Bacs), HMRC’s interim solution does not classify these payments as arising on the Bacs network.

“HMRC’s definition of Bacs is any business with a bank sponsored Bacs Service User Number, which does not apply to payments originating from an internet banking interface.

“For the small business employer there will be, under the interim solution, no linkage whatever between their net payments to employees and their RTI return.

“This means in effect that the Universal Credit which relies on the visibility of reliable earnings data for employees, will not have access to any proven earnings data (being net payments received from employers) for that part of the population employed by small business.

“The scale of the problem is confirmed by ONS data in the public domain.”

The full submission can be viewed here: http://www.publications.parliament.uk/pa/cm201012/cmselect/cmpubacc/1565/1565we03.htm

See also:

• HMRC may end up in the dock following whistleblower’s allegations over tax deals
• HMRC chairman who was supposed to represent ordinary taxpayers steps down
• U-turn on P45: leaver statement reform scrapped for RTI launch