RESPONSE TO HMRC CONSULTATION DOCUMENT: SECURING
COMPLIANCE WITH REAL TIME INFORMATION – LATE FILING AND
LATE PAYMENT PENALTIES
RTI Enforcement Regime to provide background to new regulations expected
in Autumn 2012 for implementation in April 2013
1
2
INTRODUCTION
1.1
The Association of Accounting Technicians (AAT) is pleased to comment
on the issues raised in the HMRC consultation document on “Securing
Compliance with Real Time Information – Late Filing and Late Payment
Penalties”.
1.2
We have over 49,800 full and fellow members and 66,000 student and
affiliate members worldwide. Of the full and fellow members, there are
over 3,700 Members in Practice (MIPs) who provide accountancy and
taxation services to individuals, not-for-profit organisations and the full
range of business types.
1.3
We are a registered charity whose objects are to advance public education
and promote the study of the practice, theory and techniques of
accountancy and the prevention of crime and promotion of the sound
administration of the law.
1.4
In pursuance of those objects AAT provides a membership body. We are
participating in this consultation not only on behalf of our membership but
also from the wider public benefit perspective of achieving sound and
effective administration of taxes. The issues raised in this consultation
document will not only affect the vast majority of our MIPs and their clients,
it will also affect a significant proportion of our employed members working
in payroll in both the private and the public sector.
INTRODUCTION TO THE CONSULTATION DOCUMENT
2.1
We are responding to the published consultation document entitled
“Securing compliance with Real Time Information – Late filing and Late
Payment Penalties” published 14 June 2012 for responses by 6 September
2012.
2.2
Before identifying our responses to the specific questions posed in the
consultation document we want to respond to some of the general text in
the document.
2.3
We note that this document provides some clarification to the requirement
for employers to be live by October 2013 and believe, having heard
members’ comments about the reaction of the smallest employers to this
development, that during the planned publicity campaign later this year
there ought to be less reference to October and more emphasis on such
employers being live in September 2013.
2.4
From speaking to members and employers we have found that in general
the term ‘October’ is interpreted as meaning that the smallest employers
have until the end of October 2013 to work with, when completing their
own implementation of RTI. Employers who are represented by an agent
or who use commercial software are likely to have fewer, if any, problems
as they are guided by their agent. However, as has been pointed out on
many occasions there are many thousands of employers who are neither
formally represented, nor use commercial software. In addition many
employers will use software that was previously fully licensed, but have
subsequently allowed their license to lapse. This will mean that they do not
receive software updates from the supplier and will be unaware of the
specific RTI implementation timetable and are likely therefore to believe
that the full month of October is available to them for development.
2.5
Following on from the comments at 1.7 in the consultation document
concerning the savings which HMRC believe will accrue from this
development, we would point out that we remain unconvinced that the
smallest employers and our sole practitioner members will save anything
through the move to RTI compliance. Many such employers and agents do
not use commercial software simply because it is unnecessary and unduly
costly.
2.6
Many use spreadsheets to do all their payroll computations even to the
extent of creating professional looking payslips. Under the new approach
they will be forced to use the gateway to upload RTI submissions every
pay period.
2.7
No matter how often this is looked at, such practices which are perfectly
acceptable and have served small employers and sole practitioners very
well over the years, will lead proponents of such practices to face
significant additional costs which, for the agents, will have to be passed on
to the clients or lead to them facing a reduced level of fee income.
2.8
If agents pass the additional compliance costs incurred on to their
employer clients HMRC faces the distinct possibility that many of the
smaller employers will decide to dispense with their agent and complete
this work themselves. This has the potential to introduce considerable risk
to the whole payroll compliance process. Given that the workforces
engaged by small employers are more likely to be Universal Credit
claimants we would expect this possibility to be one HMRC and DWP
would hope to avoid. On many occasions senior HMRC staff, and indeed
Ministers, have stated they would rather be dealing with a small number of
qualified and licensed agents than much larger numbers of potentially
unqualified and inexperienced employers who do not carry out payroll as
their primary function.
2.9
In paragraph 2.3 of the consultation document we note the comment that
RTI will result in “the removal of much of the current PAYE end of year
process”, the regular referral in the consultation document to the possibility
of HMRC retaining some aspects of the end of year concerns us. From the
beginning it has been our understanding of RTI that the entire payroll end
of year process would disappear to be replaced by the pay period by pay
period reporting of RTI submissions, with the exception of the need to
retain the production of the annual employee statement, P60.
2.10 Regularly at RTI engagement meetings this original promise appears to be
being replaced by the use of the words “much of” and we consider it to be
essential that HMRC clearly and completely defines which, if any, of the
year end process are to be retained. At some consultation forums HMRC
staff have alluded to the possibility of an annual “reconciliation” exercise to
check that the aggregate amount of the RTI submissions fully agrees.
2.11 This has prompted Employer Consultation Forum members to point out
that employers currently have an annual reconciliation document, in the
P35, and that we were all promised that this would disappear under the
new regime. If an annual reconciliation process is still to be required it will
remove one of the key benefits, and in fact promises, of RTI.
2.12 There is reference to employees directing benefit enquiries to the employer
instead of DWP. In paragraph 2.10 of the consultation document this is
claimed to be because the benefit payment will be directly related to the
wages paid by the employer and hence may be affected by delays or
incorrect payments.
2.13 We would ask for this matter to be clarified and open to further debate . In
our opinion it is likely to be inappropriate for any employer or agent to be
dealing with enquiries from employees about their benefit payment. Our
advice to the AAT membership would be to advise their employers or
employer clients to refer such employee enquiries to the DWP.
2.14 Employers, payroll practitioners and agents are responsible for the
computations of pay for employees and the assessment of those payments
for statutory deductions, whatever these may be. They do not, currently,
have responsibility for how this translates into the benefits paid to
employees. The relationship for benefits calculation and entitlement lies
between an employee and the DWP. Hence, we are very concerned that
the document makes a suggestion that employees should be addressing
enquiries, in respect of benefits, to employers.
2.15 At every stage of the exercise HMRC have gone to lengths to claim that
this process will cut employers costs in the long term, even going as far as
to quantify this at around £600m a year. If any part of this generates an
increase in enquiries to an employer it will reduce any potential savings,
through either tying up internal resources on a non-business activity or
through the need to involve the employers payroll agent.
2.16 In paragraph 2.14 there is reference to a delay in charging penalties for
those employers participating in the pilot scheme and presumably a soft
landing will be applied to those employers joining in April 2013 to ensure
they are treated equally with others joining later, until October 2013 when
all employers will be covered. Whilst we agree with this approach, and will
return to this in responding to the appropriate questions later, our
requirement would be, under all circumstances, that notices of potential
penalties are issued immediately even if the actual penalty is delayed.
2.17 We make the above comment out of concern for the current practice of
HMRC applying penalties in arrears. Sometimes penalties can be applied
significantly in arrears at times, to the extent that the first indication an
employer receives that they have defaulted is many months after the
offence. This tardy notice of penalties is inappropriate and causes great
distress to the recipient and does little to enhance the creditability of
HMRC. Recent tribunal decisions have confirmed this practice to be
unacceptable.
2.18 Even if the penalty is delayed or deferred a notice issued at the appropriate
time will provide an employer with the opportunity to correct their noncompliant behaviour and, thereby, limit the potential final penalty. In
section 4 the document covers the existing penalty regime and highlights
instances whereby some of the existing aspects could be applied (such as
in 4.3). We support the principle used in the current VAT regime
whereupon the first default by an employer does not incur an actual
penalty but places the business under observation for a 12 month period,
often referred to as having been “yellow carded” or warned.
2.19 If this were to be applied to the RTI enforcement regime it would mean that
an employer would be informed that they were in default but that as long
as they corrected it in the future it would not result in a penalty being
levied. Knowing that they are under closer scrutiny for 12 months is more
likely to engender better future compliance from an employer, as
evidenced by the experience of HMRC in respect of VAT returns.
2.20 We accept this would mean HMRC responding immediately to defaults
when the consultation document is regularly trying to find ways of avoiding
this. However, on considering the importance of the change we cannot see
any other way of securing compliance quickly and effectively.
2.21 We support the principle of an increasing level of penalties applied for
continuing default, as is applied with the CIS regime. Such an approach
will mean an errant employer has a choice to either comply or face the
prospect of incurring ever increasing penalties. We see this approach as
being far more effective than the comments made later in the consultation
document that if a correct and up-to-date RTI submission is made after a
six month gap, but within the same tax year, that this will probably fill the
gap adequately and mean the missing returns will not be required. Above
all our view is that any enforcement regime for RTI must follow the
principle, that penalties across the heads of duty should be broadly equal
so that defaults in respect of one tax is treated very similarly, if not equally,
to any other type. We accept this will make it more difficult for HMRC to
apply, considering the very different regime that RTI.
3
Question 1: Do you have any comments on RTI and error penalties that
will help us support businesses and promote timely filing under RTI?
3.1
A report by the Better Regulation Executive1 found that a significant
proportion of microbusinesses do not use the Internet as part of their
business. And the report by the Low Incomes Tax Reform Group2
mentioned that nearly 10% of UK company returns and incorporations
continued to be submitted to Companies House by paper in 2011”.
3.2
Whilst we believe that this figure is possibly slightly inflated, it is important
to reflect on the fact that there will be a significant number of smaller
employers who do not have access to computers, or more likely
broadband. As a result our view is that not enough is being done to
recognise this group, who are likely to find themselves “digitally excluded”
and hence disadvantaged when it comes to complying with RTI.
3.3
We accept and welcome the fact that exclusions will apply to the
employment of domestic carers and those whose religious orders forbid
electronic communications, however this group will find themselves at a
disadvantage over compliance and hence more likely to face sanctions
which are neither helpful nor appropriate.
3.4
We hope that the promotion of the changes to the smallest employers,
when it takes place in the autumn, (as we understand it), will take note of
the needs of this group.
3.5
Whilst taking the above into account, AAT accepts the need for sanctions
in order to ensure that all businesses and agents comply, particularly
ensuring that all employers equally face the costs of compliance. We
emphasise the need for sanctions to be publicised widely and for HMRC to
notify defaulting employers immediately of their non-compliance even if
actual penalties are delayed or deferred.
Lightening the Load: the Regulatory Impact on UK’s smallest businesses (Better Regulation Executive:
Report November 2010)
1
2
Digital Exclusion, a research report by the Low Incomes Tax Reform Group of The Chartered Institute
of Taxation, April 2012
4
5
Question 2: How best can we support employers in understanding their
obligations under RTI and implementing the new system?
4.1
We believe that the only way to ensure the best support possible is to write
to each and every PAYE scheme over the next seven months and to
repeat that publicity at least once during that period.
4.2
HMRC should build on its current attempts to communicate with the agent
community and all of this activity should be in addition to its employer and
general publicity which has to be promoted through the relevant media
channels.
4.3
Employers that are supported by a qualified and licensed agent are much
more likely to be compliant, this is HMRC’s own published view, and in the
long-term is not necessarily going to be unduly costly to employers.
Employers need to be reminded that the cost of non-compliance is far
higher than the cost of applying the correct skills, knowledge and
experience to the task.
4.4
We do not believe that HMRC should miss out on any possible avenue for
ensuring compliance in the effort to make sure this critically important and
politically sensitive transformation is achieved on time and correctly.
Question3: Is there a better or simpler way, than banding by potential
filing defaults, of recognising the size of the employer but also the
amount and regularity of the information to be supplied under RTI?
5.1
6
Please see our answers to Question 4 below.
Question 4: Are there particular adjustments that should be considered to
take account of more frequent payments?
6.1
In paragraph 5.7 the document refers to the practice of treating each
individual employee payment as a return in its own right and hence
capable of creating a filing default as being a powerful reinforcing factor but
“could be complicated”. We would submit that such a practice would be
complicated, very hard to understand and potentially grossly unfair.
6.2
Considering the numbers of employees involved and in particular where
there is a pay period of less than one month some employers could find
that they have incurred significant penalties before they are aware of the
fact that something might be wrong. This might occur even if HMRC’s
systems are programmed to issue electronic warnings to the employer at
an early stage.
6.3
We note that the information provided is classified as possibly being
required to check income tax payments are correct and may be needed for
benefit purposes. The fact that the vast majority of employees will not be
benefit recipients and will not have problems with their income tax this
proposal means employers facing significant penalties for failing to supply
information that is then not required by the authorities.
6.4
We also note that at paragraph 5.16 of the consultation document,
reference is made to the fact that even if an employer fails to file their
returns on time it may be that a correct return later in the same tax year
produces sufficient information to fill any gaps in the returns, and hence
there is the suggestion that no follow on penalties may be required.
6.5
Whilst the above appears reasonable we do have a concern that it appears
to suggest that the information being demanded is not as critical as first
indicated and we wonder if a much simpler system of sanctions is needed.
Is there any requirement to change the principle of the current year end
return penalty and sanction regime, for example where a fixed penalty is
demanded for failure to file plus an additional penalty depending on the
size of the payroll?
6.6
AAT members need to know just how an RTI return is going to be subject
to quality control measures. Since the whole process, as indicated in this
section, means each line of a return is a separate return, it means
employers having to remember that a Full Payment Submission (FPS) for
a payroll of 50 employees is actually 50 returns and not one. This is in
contrast with the view we, and most employers will have that the FPS is a
single return since it occurs as the result of a single process. Therefore we
consider that there is a need for clarity over how the submission is going to
be accepted by HMRC.
6.7
Working on the assumption that most FPS filings will not have errors, logic
tells us that in a single year each employer will have at least one line in
which there is unacceptable data. Will that one line be rejected by HMRC,
returned to the employer with details of the data field to be corrected and a
warning that failure to correct it and submit immediately will incur a penalty
or will the entire FPS be rejected until each and every line is checked and
corrected?
6.8
The manner in which this quality control is applied has a significant bearing
on the approach we would expect on enforcement, because if the entire
FPS is rejected irrespective of the actual number of errors then we would
expect this to be treated as a single failure.
6.9
By augmenting any immediate warnings and penalties with a system which
places the employer on watch, similar to the VAT regime, should enable
HMRC to have sufficient powers to enforce compliance.
6.10 We will comment later on the suggestion that missing returns may not be
as critical as first thought.
6.11 As far as Question 4 is concerned we would merely add that at some point
HMRC and the government ought to start considering issuing more
rewards for good behaviour rather than constantly concentrating on
punishing bad practices and failures. Over the decades very little has been
done to consider positive messages which are known to have much
greater effect than constant negative ones. History confirms to us that the
successful collection of taxes is largely publicised as a success of HMRC
whilst any problems in collection put down to errant employers. Such
publicity does nothing to encourage good employers and agents who are
the ones who are actually collecting the taxes.
6.12 To answer the question of adjustments, if the banding system is used, and
this assumes the practice of treating FPS returns containing 50 employee
data lines as 50 returns, then the whole system must recognise the
regularity of submission. Currently the end of year regime grades the
penalties on bands of 50 employees and whilst this does not adequately
punish the very largest defaulters it at least goes some way to recognising
volume.
6.13 With an FPS on the other hand the banding ought to recognise that an
employer with 50 weekly paid employees is submitting 2,600 returns in a
year compared to the previous regime of only 50 and we do not feel the
proposals give due regard to those burdens and responsibilities.
7
Question 5: Should a penalty be charged as soon as a return is late or
would employers prefer penalties to be charged later, perhaps each
quarter?
7.1
The AAT has always maintained that if HMRC wishes to influence
employer and agent behaviour and stop bad practices before they become
entrenched, notifications of failures must be immediate.
7.1
Any regime which delays notices and penalties will allow an employer, who
has simply failed to understand, to continue accruing penalty charges long
before realising that something is wrong. Most would fix the problem as
soon as they become aware that there is a problem.
7.2
In previous years employers who failed to submit a year end return
correctly, perhaps because they inadvertently classified it as a test return,
often did not find out until much later in the year that they had done so, by
which time several fixed penalties had built up without their knowledge. An
immediate notification of default would, in the vast majority of cases, result
in an immediate correction and hence result in a limitation of the likely
penalty, perhaps even a complete mitigation.
7.3
Any system should follow this convention in order for it to be fair and
equitable and meet the stated desire of correcting non-compliant behaviour
immediately.
8
9
Question 6: Do you agree that only one late filing penalty should apply to
each PAYE scheme each month, regardless of how many returns are late
that month?
8.1
We agree that only one late filing penalty should apply to each PAYE
scheme each month, regardless of how many returns are late that month.
8.2
In our opinion an employer who has an FPS which is rejected for any
reason should be dealt with as though a single failure had occurred and a
full month considered in isolation. However, an employer with weekly
payrolls must be notified immediately a failure occurs so that efforts can be
made to correct it and mitigate the effects.
8.3
If notifications are delayed then HMRC should not be applying penalties for
the missing FPS returns or for errors in a return which was not queried
immediately when HMRC’s systems noted the problem.
8.4
We also feel that if the employer subsequently submits a future return
which bridges the gap between the last accepted return and the missing
returns in between there should not be a penalty issued.
8.5
We say this because if, as stated in the consultation document, missing
FPS returns may not actually be needed then any penalty would be unfair.
Question 7: Should the RTI late filing penalties include a further penalty if
a return is outstanding at the 6 and 12 month points?
9.1
We note the comments made in section 5 concerning missing returns and
the absolute necessity for them. As mentioned above this concerns us and
we do not consider that ignoring those missing returns is the way to correct
non-compliant behaviour.
9.2
The return is either needed or it is not and the enforcement regime should
recognise this. If they are supposed to be submitted then enforcement
ought to generate the required response and penalties then used to ensure
this happens.
9.3
It is our view that penalties ought to be increasing at the six and 12 month
stages and that continued failure is dealt with in the same manner as
applied to other taxes.
10
Question 8: What are the benefits and downsides of phasing the
introduction of automatic late filing penalties for RTI along the lines set
out above?
10.1 There is no question that we would support the phasing in of penalties.
During the early stages of live RTI we feel that notifications of failure are
absolutely critical to ensuring long term compliance and those who went
live early because they joined the pilot scheme should not be treated any
differently.
11
Question 9: Should consideration be given to including a default that
does not attract a penalty along any of the lines set out above?
11.1 Yes, consideration should be given to implementing a regime similar to
some other taxes which seeks to recognise previous ‘good behaviour’ and
warns rather than penalises for a first offence.
11.2 In fact we would encourage HMRC to implement this as a mark of good
enforcement.
11.3 As we have mentioned above, there seems to be very little in the
enforcement schemes which recognises and rewards ‘good behaviour’ and
only penalises. A scheme which notifies an employer of a failure, places
them on watch for a period and then only penalises them financially if
subsequent failures occur, is much more likely to succeed.
11.4 Employers would, if this were implemented, see this as a fair way to deal
with them and we feel most, including our members, would be more
inclined to cooperate.
11.5 We also note that the Customs & Excise arm of HMRC has used this
regime for many years and clearly believe that it works for them and their
taxpayers.
12
Question 10: We would be grateful for comments on the detailed design
options set out above. In particular, how should we encourage employers
to use the nil return facility where there is no information to be returned?
Is any additional incentive or sanction needed over and above the fact
that a late filing penalty may be issued if an expected return is not
received?
12.1
Lower limit penalty: We would be against the idea of such a regime, for
the same reasons given by HMRC. It is somewhat arbitrary, would be
expensive to administer and clearly more difficult to understand.
12.2
Throughout our responses we have consistently argued for notices
immediately following an event and followed up by a penalty soon
afterwards. In our view it is only in these circumstances that employers
who are more likely to be non-compliant will behave in the manner
required.
12.3
A situation where a penalty is issued for an event some 12 months
previously will do nothing to associate the penalty directly to the event
and therefore will fail to encourage compliance.
12.4
We also agree that to have a small employer default without any penalty
charge is not acceptable.
12.5
Quarterly penalties: We agree with the principle that penalties should be
issued at specific times and we also agree that staging these to avoid
overloading HMRC processes is also a worthwhile idea, however it is
the proposed period we would disagree with.
12.6
Given that the vast majority of employers run at least one monthly
payroll it would make sense to us for HMRC to assess an employer on
their compliance each month, irrespective of the number of returns due.
Again we would seek to persuade HMRC to treat each FPS as a single
event and to grade penalties in multiple of employees as happens now.
12.7
Penalties each month ought to include increasing amounts of penalty
where it is obvious that non-compliance in previous months has not
been corrected. Such an approach would mean employers would not
only see but experience the consequences of “getting it wrong” and they
would become acutely aware of what happens when they continue to do
so. The effect, whilst not immediate, are close enough to the offence to
be directly related.
12.8
Staggering penalty notices: it is for the above reason we would be
against the idea of staggered penalty issue periods. Whilst this will
make things easier for HMRC it brings the prospect, once again, of
penalties an employer will find difficult to associate with the original
offence.
12.9
Again we would argue for a more immediate penalty regime, certainly in
the first few years, which makes for more immediate redress.
12.10 Penalty cap: A penalty geared to the size of the payroll and hence the
size of the FPS which is at fault, should not require a cap of any sort.
We can see, however, that continued failure by a small employer could
result in significant penalties before that employer understands what is
wrong and how to put it right.
12.11 In such cases, particularly where weekly payrolls are being run and the
employer is under the impression that what they are doing is right, we
can see how a reasonable cap will both deter the employer from further
non-compliance, make them take the matter seriously but also limit the
financial impact of their non-compliance.
12.12 One of our members’ chief concerns has always been the manner in
which the very largest of employers often feel that the penalties for noncompliance are less than the cost of compliance and in such cases we
do not believe that the proposed cap of £10,000 for them is appropriate.
As HMRC itself points out, the very largest employers have the means
to use the appropriate expertise and software in respect of payroll and
consequently RTI. It seems wrong not to penalise them appropriately.
12.13 Appeals: We have no problems with the idea of introducing objections
to penalties prior to allowing formal appeals, assuming this is what is
being proposed. However, recently our members have reported that on
more frequent occasions their clients are being approached by phone
on matters which are better dealt with by the agent.
12.14 In some cases this results in much more time spent on an issue than
would be appropriate. In one case reported to us the combined use of
employer and agent time resulted in a problem taking several hours to
sort out when one simple call to the agent would have resolved it in
minutes. The client would have avoided a charge if this had happened.
12.15 The use of telephone contact to find out what has been going wrong
therefore is a good idea and one that we would endorse in principle.
However, we would ask that such an action be employed in conjunction
with a commitment to identify the most appropriate person to make
contact with (namely the relevant agent) in the first instance, on all
occasions. Failure to, would mean the process runs the risk of elevating
a small issue to a large problem.
12.16 We would expect that the normal appeals process would exist beyond
the initial attempts to resolve an objection, and assume that legislation
will include a specific reference to the legitimacy of telephone objections
as a prelude to a formal appeal.
12.17 Channels: We would agree with this view, it makes sense that where an
electronic channel is being used to upload FPS returns, that same
channel is used firstly to notify the employer of changes, such as new
tax codes and corrections to national insurance numbers, and then to
query any problem with the FPS and finally to issue notices of failure to
comply.
12.18 This, if used, will help HMRC to meet our previously stated preference
for the issuing of a notice as soon as possible after a RTI failure and
hence seeking to obtain compliance immediately, assuming the
employer is one who is interested in compliance.
12.19 Nil returns: Whilst we would normally be against the imposition of work
for members and their clients which is normally not required we see
considerable merit in nil returns. In our view there is less work involved
in submitting regular nil returns than dealing with compliance notices
and warnings of penalties.
13
Question 11: What are the pros and cons of charging penalties for late
filing and late payment at the same time?
13.1 As HMRC has pointed out, there are both advantages and disadvantages
to the proposal that the two penalties are charged together. Our view, as
discussed previously, is that a monthly assessment of an employer’s
compliance would be preferable to any other method.
13.2 At that point all aspects of the employer’s compliance with the RTI
requirements would be assessed and penalised accordingly. We accept
this may mean penalising an employer in month B for failure to submit the
return on time in month B along with the penalty for failure to make the
appropriate PAYE payment for month A but due in month B.
13.3 As long as these are itemised clearly and unambiguously we see no
problem with this as it associates the penalties in that month for failures
which have occurred in that month even though one of the actions relates
to a previous one.
13.4 At the same time continued failure to comply with the requirements in
month A could be the subject of an increased penalty.
13.5 An employer would receive a single “account” specifying what has been
wrong in that month with the associated penalty for that.
13.6 Our only concern with this would be that in some cases the failure to make
the proper payment of PAYE in month B may actually be the same
problem that caused the failure to file on time in month A and even though
they are separate events, many employers will see this as being penalised
twice for the same problem. This can be dealt with in an objection review.
14
Issues not to be included
14.1 In 5.41 the consultation document makes further comments around the
types of penalties that are not being considered, and we note that some of
these are the very ones we would like to see in the new regime.
14.2 We find it difficult to understand why an employer is not to receive further
penalties for continued non compliance as this will not encourage such
employers to comply. Some may see that a £500 penalty is worth it not to
bother with the FPS process.
14.3 We understand that a tax geared penalty is not appropriate for submission
failures and would only apply to payment errors.
14.4 We also do not understand why the VAT 12 month notice period cannot be
extended here. Given that RTI relies on completely accurate and timely
and more frequent returns by employers we see considerable merit in
applying the VAT system to it. Employers would benefit from being under
watch for a 12 month period and many would make the effort to comply if it
meant being released from that after 12 full months of compliance.
15
Question 12: We would be grateful for comments on these models, or any
combination of the elements included in the models. We would especially
welcome ideas to simplify them, but which still support and encourage
compliance with the RTI information obligation.
15.1 Model 1 – If our reading of the table is correct, it would appear to us that an
small employer with a monthly payroll of less than 50 employees who
chooses to submit one FPS every year, say in March, would incur 11
penalties of £100 each plus a six month penalty of £300.
15.2 There would be one default every month but no 12 month penalty as the
final return is submitted at this point. If this is correct the total penalty,
assuming the employer makes all the necessary monthly or quarterly
PAYE payments on time, will be just £1,400.
15.3 Some employers may feel this is a satisfactory cost for making a single
submission a year. What it does not do is allow HMRC to check that the
monthly or quarterly PAYE payments match the amounts due from the
payroll transactions in the previous month. It also does not seem to us to
provide sufficient encouragement to submit the FPS returns on time every
pay period.
15.4 Such practice would, surely deny DWP the data it requires to ensure that
for the few employees on that payroll who may be in receipt of Universal
Credit, the amount to be paid is correct. We are concerned that this could
result in a significant overpayment of benefit, given that DWP would be
paying out on the assumption the employee has been receiving nothing by
way of wages each pay period.
15.5 Model 2 – This model illustrates the problem in suspending penalties and
only applying them if the minimum filing penalty has been reached. With
the example above, of a small employer filing only one FPS every March,
the total penalty reduces considerably. What is worse is that the penalties
are applied much later than the offence to which they relate, thereby failing
to be a suitable deterrent to default nor an encouragement to comply.
15.6 We believe that a model which assesses the employer each month,
penalises defaults in the month, excluding the first default, and contains
increasing penalties from previous defaults which have still not been
rectified is the only one which will adequately penalise non-compliance but
will also be sufficient to encourage employers to get it right.
Late payment penalty regime
16
Question 13: We welcome comments on these proposals.
16.1 Generally we would be in favour of the proposals as they maintain the
current regime, mirror that applied to other taxes and with the legislative
changes will ensure the regime is enforceable.
16.2 We have some concerns over the ability of HMRC to apply the penalties.
16.3 According to the late filing penalty proposals HMRC does not intend to
penalise too highly the incidence of missing FPS returns should the
employer submit subsequent returns and hence fill the gaps created by the
missing one.
16.4 If the late payment penalties are to be geared to the known value of a
payment which is due then how will it apply to an employer who fails to file
the FPS? Without the FPS there is no known PAYE value and if the late
filing regime fails to encourage filing of each and every FPS for each and
every pay period then the ability to apply accurate penalties becomes very
difficult and the process flawed.
17
Question 14: Should we consider charging late payment penalties
quarterly?
18
Question 15: Should we consider allocating employers to a quarterly
stagger period for both late payment and late filing penalties under RTI?
19
Question 16: Are there any particular easements that we should consider
for new employers?
19.1 We have chosen to deal with these three questions at the same time in our
response here. Our view is the same as our responses to the late filing
penalties. We accept there is scope for a more relaxed regime and
applying penalties quarterly may work for many employers. We see some
risks for HMRC in that applying the penalty after a gap may reduce the
possibility of recovery.
19.2 In any event a prompt enquiry into a late payment may reveal an employer
in financial difficulty, which may benefit from a time to pay arrangement
rather than enforcement. Again the proposed regime for late filing may
work against this as HMRC will be attempting enforcement for late
payment without any knowledge of the amount of PAYE due.
19.3 With Question 15 we would again state that staggered charging periods
would not be our preferred route to enforcement. Not only will this mean
quarterly reviews but would also mean a delay to the start meaning the first
attempt at enforcement could be up to five months following default.
Compliance can only be encouraged through swift notification of default, a
fair approach to default, i.e. a first default in a 12 month period earning a
warning rather than financial penalty, and a quick follow up of penalty.
19.4 With new employers HMRC has to take a different view. We know from our
members that the HMRC accounts office is swift to issue notices to new
employers and generally base their approach on the statement concerning
the first pay day.
19.5 Our members tell us that despite nominating a start date which is
reasonable and avoids an early PAYE payment period and even despite
making it clear the client will be a quarterly payer of PAYE employers often
get approached the same month the payroll starts.
19.6 A new employer, who is a quarterly PAYE payer, who commences their
first payroll in July would not expect to make a first PAYE until 22 October
at the earliest. Such employers take exception to contact from the
accounts office in July accusing them of failing to make a PAYE payment.
Even if they were a monthly payment PAYE employer their first PAYE
payment would not be due until 22 August at the earliest.
19.7 Such approaches often result in conflict and suggestions that the agent
does not know enough about the PAYE process does not help client/agent
relationships.
19.8 Any automated processes must not be applied to a new employer until the
HMRC accounts office is aware of the processes in place. New employers
require a different regime for the first quarter and future enforcement based
on the performance of at least the second quarter of PAYE activity.
20
Question 17: Do you have any views on applying interest to late payment
and late filing penalties under RTI?
20.1 We would endorse the view that applying interest in this way would be to
recompense HMRC for the loss of interest which would have been earned
had money been paid to them at the correct time and recognise that it also
penalises an employer for any earnings, or reduction of interest on debt,
accrued by holding funds which do not belong to them.
20.2 The same cannot be said for a fixed penalty which has no bearing on any
sum of money which might have been due to HMRC.
20.3 HMRC must apply interest on penalties in a very careful manner otherwise
the interest becomes exactly what the document states it is not, a simple
additional penalty.
20.4 We agree that once it is clear the fixed penalty is due, has been correctly
applied and is not one which is to be withdrawn, the funds then do not
belong to the employer and become the property of HMRC. At this point
there is a liability to interest and we believe that this should not apply until
at least 30 days has passed since the penalty was issued.
20.5 According to the document penalties must be paid within 30 days of issue
and hence this is the point at which the ownership of funds passes, legally,
to HMRC. At this point the issue of interest is clear, the longer the
employer holds on to the funds the more interest is earner (or interest on
debt reduced) and hence the penalty seeks to redress the balance.
21
Question 18: Do you have any views on applying a late payment penalty
as well as interest where further sums become due for a period?
21.1 Our main concern over this is the ability of the employer, or HMRC being
able to identify exactly how such an amount is to be calculated. If the
employer, as advised, makes the necessary correction in the next pay run
and hence the next FPS then, technically, there will be a sum in the
second FPS which was correctly due on the previous one.
21.2 As long as HMRC allows employers to claim interest on a sum overpaid in
one FPS which is then corrected in a subsequent FPS then we would see
it as fair to apply penalties and interest to sums underpaid.
21.3 This provision, however, seems one way only and we would not endorse it.
In the long-term it is clear that most employers will have minor adjustments
carrying forward from period to period, as they do now, and whilst there is
debate continuing in the professions and with HMRC as to how such
matters are to be dealt with, we believe that common sense will prevail and
RTI will settle down to accepting minor errors and erroneous transactions
being corrected in subsequent RTI submissions.
21.4 In this case, just as with the VAT procedures, any amendments up to a
certain limit ought to be amended without query or referral.
21.5 Where we would agree is in respect of much larger errors, say where the
total PAYE is incorrect by more than a certain percentage, say 5%. In such
cases we would expect employers to consult HMRC for advice, probably
submit an additional FPS with the corrected entries and to make sure the
consequent PAYE payment reflects the changes.
21.6 We see this as quite an imposition on employers and our members but
since they are likely to be following this convention for other taxes we see
no reason why they should not do the same for PAYE under RTI.
22
Summary
AAT is committed to continue to work with HMRC on the introduction of RTI,
endeavouring to ensure that our members are fully aware of the changes and
how to best prepare for them.
Within the response there are some issues we have highlighted as being of
particular concern: backtracking on the initial intention to eradicate the yearend process will erode the positive benefit to employers; a lack of consideration
for those employers without access to computers or a reliable broadband
service may result in a disproportionate impact on these, predominantly
smaller, organisations; focus on delivering a penalty regime that is the same
across all heads of duty would be a desirable outcome.