HMRC Is Shite

HMRC Is Shite
Dedicated to the taxpayers of Britain, and the employees of Her Majesty's Revenue and Customs (HMRC), who have to endure the monumental shambles that is HMRC.

Wednesday, 19 June 2013

RTI Coding Problems

It seems that there are, not unreasonably given that it is a new system, some teething problems with RTI. Baker Tilly reports that many thousands of employees may have been issued with incorrect tax codes.

HMRC has advised affected employers to disregard incorrect PAYE codes issued after RTI reporting started.

"The problems

Many employees who normally have their tax code restricted for benefits in kind have been given full allowances, while others have been issued with a code BR (a flat basic rate, with no allowances) or code D0 (a flat 40% rate, with no allowances). Both will result in incorrect tax deductions.

The causes

Both issues have been caused by the RTI starter and leaver processes.

Missing benefits in kind restriction

All employers had to go through a process of aligning their employee records with HMRC’s system at the very start of their operation of RTI reporting. Large employers did this by making an Employer Alignment Submission (EAS) before they submitted their first Full Payment Submission (FPS). 

Smaller employers simply submitted their first FPS, which HMRC checked against its existing records of employees on that employer’s payroll.

Any employee records that were not on the employer’s first EAS or first FPS were treated by HMRC as having ceased employment at 5 April. This deleted the record of the benefits restriction to their tax code.

When these employees were subsequently paid for the first time under RTI, and payments appeared on a later FPS, they were incorrectly treated by HMRC as new starters, with no history, so a new code was issued automatically, with no restrictions.

Missing allowances

Some employees leave their job without employers knowing before they report what prove to be the final payments.  There is no RTI mechanism for flagging workers as leavers without making a new payment, which is unlikely to happen. Under the old regime, employers could submit a late P45, but that option does not exist under RTI.

So, as far as HMRC knows, the employee is still on the ‘old’ payroll with a personal allowance, and when the computer also finds the employee appearing on an FPS from a ‘new’ payroll on a different reference, it assumes the worker has two jobs and issues a BR or D0 code for the new job, rather than transferring the old code.

Something has also gone wrong with HMRC’s base data.  Some employers are reporting a large part of their workforce receiving BR or D0 codes, which is clearly not a result of unrecognised leavers.  Some tax codes are for former jobs, delivered together with a BR or D0 code for a current job. Tax is being overpaid by a lot of people as a result.

Employer actions

Where a new tax code is obviously wrong, and an employer or employee notices, the employee should be advised to contact HMRC. 

Of course, it may not be obvious that a code is wrong, so employees who normally receive P11Ds showing benefits should be warned to check carefully any new PAYE code issued, and any new BR or D0 codes should be queried unless they are expected."

Have any loyal readers encountered such problems?

Tax does have to be taxing.

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  1. Ever since the start of the new tax year, RTI has been causing chaos by posting duplicate or triplicate employments to the PAYE system. As any submissions made via RTI cause new tax codes to be issued automatically, this means that thousands of people and their employers have had two or three different tax codes for the same employment. So someone could have (1) a code giving personal allowance without their benefit in kind being deducted; (2) a basic rate code because all their allowances have been used against the *real* emplyment; *and* (3) a higher rate code because the system calculates that the 'three' employments take the employee into the 40% band.

    In other words, it's the fustercluck that the people within HMRC who have to operate the system predicted it would be. But if we complain, we're told that the system is 'operating to design'; just as we've been told the same about the PAYE system which is still about 40% workarounds four years after it was implemented.

  2. A colleague told me her team have been moved over to help RTI this week. In the first 3 days they’ve been given 3 lots of instructions that contradict each other and workarounds to amendments. They're being trained by people that were moved over there the previous month who barely know what to do either!

    Many moons ago when we used to be called Inland Revenue you had classroom based training on dummy cases. Now your working on live cases with minimal instructions and they wonder why staff morale is rock bottom (what comes below rock bottom because we're about to reach it)

  3. Are not these problems with incorrect PAYE codes precisely the thing that RTI was supposed to fix when it was being hailed as a huge success just a few weeks ago ?