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RTI cost for payroll grossly underestimated says damning parliamentary report 12 July 2012

Ian Liddell-Grainger has been investigating RTI

PAYE at the Crossroads, which was written with considerable access to the Revenue’s top brass, was launched this morning by the All-Party Parliamentary Taxation Group (APPTG) chaired by MP Ian Liddell-Grainger and attended by senior representatives from the payroll and taxation industries, as well as former shadow financial secretary to the Treasury, Stephen Timms.

The report states: “HMRC have not estimated the cost of RTI to the payroll industry… RTI has a business case in and of itself, albeit a weaker one than HMRC believes.

RTI should be viewed as the next logical phase in transition towards a new model for PAYE in the 21st Century, which negates all of PAYE’s problems and delivers the big cross-governmental prize – Centralised Deductions.”

It is suggested that one reason the cost of RTI has been underestimated is that HMRC does not fully understand the complexities of payroll practice in the UK.

For example HMRC’s estimated migration cost onto RTI of £85m (£50 per PAYE scheme), which includes £35m on checking and amending data and £50m on training and familiarising staff with the new processes, does not include software upgrade and purchase costs.

The APPTG found that, for example, up to 23% of micro businesses do not have any payroll software in place and so will be forced to buy new systems.

Lack clarity

The report also argues that the Interim Solution adopted by HMRC in the RTI pilot is unsustainable, does not guarantee real-time accuracy and has caused uncertainty in the payroll software market, which has contributed to a general uncertainty over the reform.

The Interim Solution separates employee payments from RTI data reported to the Revenue. Though HMRC has a process in place to cross-reference the two the report describes it as a “checking process not a guarantee”.

“Due to these factors, a number of payroll software providers are unable to provide larger businesses with any certainty in relation to functionality or cost, particularly with bespoke products,” it states.

“As a result businesses are hindered in their preparation for RTI migration and lack clarity over how their software will facilitate the new business processes that underpin RTI. This is particularly important in relation to staff training and familiarisation of new processes.”

And payroll suppliers have raised additional concerns over the costs of RTI development.

Richard Thomas, director of product strategy at MidlandHR, told Payroll World: “Understanding HMRC’s requirements and building a compliant solution to deliver RTI on target has meant significant investment by software developers. This is progressing alongside pensions reform and auto enrolment, which has additional demands because traditionally payroll software providers have had very little to do with pensions administration.

“With RTI and pensions reform hitting at the same time, the issue will be exacerbated, placing pressure on software providers with many customers requiring upgrades and training in the same time period. This will mean that training resources and consultancy will be at a premium in Q1 of 2013.

“While some vendors have said they’re not passing on the cost, I suspect it will be more of a case of how creatively they do it. At some point someone is going to have to pay the bill for all of this development work.”

Universal Credit

Speaking at the launch Jamie Black, the report’s author, said that ultimately the government was building RTI without knowing what it wanted to do with it.

Referring to Universal Credit benefit reform, which is driving the timetable for RTI, he said: “I’m not saying Universal Credit won’t work – it will work, it just won’t work as well as the government wanted it to work if the timeframe wasn’t driven by policy but was driven by business needs – and to be honest common sense rather than political need.”

According to documents seen by the APPTG the total government investment cost for RTI may be greater than £274m – a massive overspend. This is rejected by HMRC, which says the total cost is closer to £100m.

A spokesman for HMRC told Payroll World: “RTI is on track and will be paying for itself as early as next year. Its introduction will remove administrative burdens from businesses of around £300m a year and will support the operation of Universal Credit. The RTI business case remains one of the strongest in government and the programme pays back twice in every year.

“This review recommends centralised deductions – an alternative change to the PAYE system that the government had already considered in detail in 2010 and rejected as over-complex and too expensive.”

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