‘The PAYE story is a better one than when we looked at it six months ago and we welcome that – it is a better place to be in,’ the Chairman of the Commons Public Accounts Committee told David Hartnett, HMRC’s Permanent Secretary for Tax, on 17 October.
There were still some concerns, Margaret Hodge said, and estimates of tax written off by HMRC represented a ‘shocking loss to the taxpayer’.
A few days later, national newspapers reported that 1.2m taxpayers were about to be told that they owed tax for 2010/11 and a further 6m could expect repayments for earlier years.
► PAYE – where are we now? |
The Daily Mail website had ‘Bungling Revenue to repay £2.5bn to six million’, and ‘HMRC to write off billions in unpaid tax as officials struggle to fix latest blunders’. The broadsheets offered a more measured analysis, and Accountancy Age noted that the 2010/11 figures were first disclosed in June.
The ICAEW Tax Faculty observed last week that the annual PAYE reconciliation process had caused ‘another media storm’. The real issue, the Faculty said, was how many under and overpayments were caused by ‘errors and glitches’ in HMRC’s National Insurance and PAYE Service (NPS), the computer system installed in 2009.
The Chartered Institute of Taxation said the current problems did not amount to an HMRC ‘blunder’, although the department did deserve criticism for ‘letting such a huge backlog build up’, and significant amounts of money had been written off.
The scale of the backlog for 2009/10 and earlier years became clear more than 12 months ago. Tax Journal reported in September 2010 that more than a million taxpayers faced demands for 2008/09 and 2009/10, and delayed reconciliations for earlier years were expected to result in many more taxpayers being told they had underpaid.
The CIOT’s Low Incomes Tax Reform Group noted last week that ‘once again, the press have been having a go at HMRC about PAYE failures’. But the current ‘mess’ had arisen because HMRC had become ‘more efficient rather than less so’, LITRG argued.
Backlogs should be unlikely in the future, the CIOT suggested, because most reconciliations are now done automatically; Real Time Information (RTI) will enable HMRC to update codes more quickly; and HMRC is ‘getting better’ at matching records on its system.
‘HMRC should work more with employers to educate them about the importance of having accurate and up to date employee records, explaining what they need to check and why,’ the CIOT said. ‘The general public also needs to be educated so that they can take more responsibility for their own tax affairs and don’t just assume that their employer and HMRC will “get it right”. They should be able to check their PAYE codes and contact HMRC if they don’t think they are right or don’t understand them.’
ICAEW Chief Executive Michael Izza seemed less positive about RTI. ‘Whether such a system would work, or merely create more problems than it solves due to the creation of a bureaucratic nightmare, is a question that is not yet resolved,’ he wrote on the ICAEW website.
The CIOT noted that the PAYE system ‘usually works fine if you have one stable source of income through the year’. But taxpayers can end up paying too much or too little tax if they have more than one source of income, change jobs, move in and out of work during the year or receive benefits in kind.
The Tax Faculty pointed out that annual reconciliations have always been a feature of the PAYE system. The task was ‘extremely labour intensive, taking many months’, before it was computerised. HMRC ‘inevitably struggled to keep up and fell behind as the organisation was downsized’, the Faculty said.
‘PAYE will never be an exact collection method for everybody, but bearing in mind the volumes of people dealt with, it does a pretty good job,’ LITRG said. ‘The improvements in 2013 and beyond should take the accuracy levels to a new high.’
Tax year 2010/11
All of the 2010/11 overpayments have been notified, the Tax Faculty said, with 2.3m taxpayers receiving repayments averaging about £300.
HMRC was now focusing on 1.2m underpayments, the average underpayment being £512. These include about 146,000 new pensioners who did not have their PAYE code adjusted for the state pension – which is taxable but paid without deduction of tax – during 2010/11. Extra statutory concession A19 does not apply to these underpayments because the taxpayers will have been notified of the arrears within 12 months of the end of the year.
Tax years 2008/09 and 2009/10
A similar issue affected 250,000 pensioners for 2008/09 and 2009/10 but HMRC is not seeking to collect the resulting underpayments.
The NPS was first used for the 2008/09 and 2009/10 reconciliations, and about 6m taxpayers were notified of under or overpayments.
HMRC is tackling manually a further 6.7m cases for 2008/09 and 2009/10 that ‘cannot be reconciled through the NPS as HMRC lack some of the relevant information’, the CIOT said. HMRC had indicated that most of those cases were expected to show that the correct tax was paid.
Tax years 2003/04 to 2007/08
‘We understand that work on reconciliations for 2007/08 is now nearly complete,’ the Tax Faculty said.
David Gauke, the Exchequer Secretary to the Treasury, told MPs in January that HMRC would not collect sums of less than £300 for 2007/08.
HMRC would work all cases where a taxpayer is due a repayment for years prior to 2007/08, he said, but would not issue further underpayment notices for those years.
Approximately 6m letters are to go out between now and the end of 2012, telling people they overpaid tax in the years 2003/04 to 2007/08. The average refund is about £400.
‘The 6m rebates starting to go out are a sign of progress, showing that HMRC are getting to grips with these historic cases,’ the CIOT said.
‘The PAYE story is a better one than when we looked at it six months ago and we welcome that – it is a better place to be in,’ the Chairman of the Commons Public Accounts Committee told David Hartnett, HMRC’s Permanent Secretary for Tax, on 17 October.
There were still some concerns, Margaret Hodge said, and estimates of tax written off by HMRC represented a ‘shocking loss to the taxpayer’.
A few days later, national newspapers reported that 1.2m taxpayers were about to be told that they owed tax for 2010/11 and a further 6m could expect repayments for earlier years.
► PAYE – where are we now? |
The Daily Mail website had ‘Bungling Revenue to repay £2.5bn to six million’, and ‘HMRC to write off billions in unpaid tax as officials struggle to fix latest blunders’. The broadsheets offered a more measured analysis, and Accountancy Age noted that the 2010/11 figures were first disclosed in June.
The ICAEW Tax Faculty observed last week that the annual PAYE reconciliation process had caused ‘another media storm’. The real issue, the Faculty said, was how many under and overpayments were caused by ‘errors and glitches’ in HMRC’s National Insurance and PAYE Service (NPS), the computer system installed in 2009.
The Chartered Institute of Taxation said the current problems did not amount to an HMRC ‘blunder’, although the department did deserve criticism for ‘letting such a huge backlog build up’, and significant amounts of money had been written off.
The scale of the backlog for 2009/10 and earlier years became clear more than 12 months ago. Tax Journal reported in September 2010 that more than a million taxpayers faced demands for 2008/09 and 2009/10, and delayed reconciliations for earlier years were expected to result in many more taxpayers being told they had underpaid.
The CIOT’s Low Incomes Tax Reform Group noted last week that ‘once again, the press have been having a go at HMRC about PAYE failures’. But the current ‘mess’ had arisen because HMRC had become ‘more efficient rather than less so’, LITRG argued.
Backlogs should be unlikely in the future, the CIOT suggested, because most reconciliations are now done automatically; Real Time Information (RTI) will enable HMRC to update codes more quickly; and HMRC is ‘getting better’ at matching records on its system.
‘HMRC should work more with employers to educate them about the importance of having accurate and up to date employee records, explaining what they need to check and why,’ the CIOT said. ‘The general public also needs to be educated so that they can take more responsibility for their own tax affairs and don’t just assume that their employer and HMRC will “get it right”. They should be able to check their PAYE codes and contact HMRC if they don’t think they are right or don’t understand them.’
ICAEW Chief Executive Michael Izza seemed less positive about RTI. ‘Whether such a system would work, or merely create more problems than it solves due to the creation of a bureaucratic nightmare, is a question that is not yet resolved,’ he wrote on the ICAEW website.
The CIOT noted that the PAYE system ‘usually works fine if you have one stable source of income through the year’. But taxpayers can end up paying too much or too little tax if they have more than one source of income, change jobs, move in and out of work during the year or receive benefits in kind.
The Tax Faculty pointed out that annual reconciliations have always been a feature of the PAYE system. The task was ‘extremely labour intensive, taking many months’, before it was computerised. HMRC ‘inevitably struggled to keep up and fell behind as the organisation was downsized’, the Faculty said.
‘PAYE will never be an exact collection method for everybody, but bearing in mind the volumes of people dealt with, it does a pretty good job,’ LITRG said. ‘The improvements in 2013 and beyond should take the accuracy levels to a new high.’
Tax year 2010/11
All of the 2010/11 overpayments have been notified, the Tax Faculty said, with 2.3m taxpayers receiving repayments averaging about £300.
HMRC was now focusing on 1.2m underpayments, the average underpayment being £512. These include about 146,000 new pensioners who did not have their PAYE code adjusted for the state pension – which is taxable but paid without deduction of tax – during 2010/11. Extra statutory concession A19 does not apply to these underpayments because the taxpayers will have been notified of the arrears within 12 months of the end of the year.
Tax years 2008/09 and 2009/10
A similar issue affected 250,000 pensioners for 2008/09 and 2009/10 but HMRC is not seeking to collect the resulting underpayments.
The NPS was first used for the 2008/09 and 2009/10 reconciliations, and about 6m taxpayers were notified of under or overpayments.
HMRC is tackling manually a further 6.7m cases for 2008/09 and 2009/10 that ‘cannot be reconciled through the NPS as HMRC lack some of the relevant information’, the CIOT said. HMRC had indicated that most of those cases were expected to show that the correct tax was paid.
Tax years 2003/04 to 2007/08
‘We understand that work on reconciliations for 2007/08 is now nearly complete,’ the Tax Faculty said.
David Gauke, the Exchequer Secretary to the Treasury, told MPs in January that HMRC would not collect sums of less than £300 for 2007/08.
HMRC would work all cases where a taxpayer is due a repayment for years prior to 2007/08, he said, but would not issue further underpayment notices for those years.
Approximately 6m letters are to go out between now and the end of 2012, telling people they overpaid tax in the years 2003/04 to 2007/08. The average refund is about £400.
‘The 6m rebates starting to go out are a sign of progress, showing that HMRC are getting to grips with these historic cases,’ the CIOT said.
