Partner Article

RTI: still a RTI old muddle

HMRC has just begun to send out P800 tax reconciliations for 2013/14. This form sets out for taxpayers in the PAYE system the tax paid and tax due according to HMRC records. P800s will be going out to about 5½ m taxpayers in stages between now and September.

The P800 was the form that got HMRC into a real muddle a few years ago, resulting in £millions in tax arrears being written off and numerous claims for relief under Concession A19 because of errors in the PAYE records caused by employers and HMRC.

Why, under PAYE, are there under- and over-payments? Why is the wrong amount of tax collected? And shouldn’t RTI have seen off the problem?

PAYE is a method of collecting tax on account and only takes the right amount from about 80% of taxpayers.

Sometimes, the PAYE code does not contain all relevant details. Estimates of items such as rental income, benefits-in-kind, pension contributions or gift aid donations differ from the actual amounts. This will virtually always be a problem in any process where only cash earnings are reported in real time. RTI should reduce the incidence, as adjustments should be quicker now than in the past.

Sometimes, the code is simply not up to date, or taxpayers have more than one job, or a job and a pension taxed under PAYE, or have moved jobs frequently and had gaps between periods of work, or the taxpayer has started drawing a state pension during the year that is not reflected in the code. RTI should have done away with these discrepancies.

So why are there more P800s this year, with RTI in full flow, than last year, when RTI was only a pilot? The number of PAYE differences has risen, not fallen. Something in RTI is not working, or the data collected promptly and accurately by RTI are not being processed promptly and accurately. RTI was supposed to make PAYE more accurate, not less, and save work, not create more.

David Heaton is Employment Taxes Partner at Baker Tilly

This was posted in Bdaily's Members' News section by Baker Tilly .