HMRC Pension Problems

As the state pension system moves to flat rate in April, National Insurance contributions will determine the level of pension received.

All perfectly normal and logical. However, there appear to be difference between the records held by HMRC and employers. As such, there is a risk that some pensioners will be over paid and others underpaid.

HMRC has claimed “no pensioners will lose out” due to faulty data supplied by their employers pension schemes.

A spokesperson for HMRC has told the FT Adviser that it is working closely with pension funds to make sure their records are completely up to date, while all pension providers should use the official checking service to make sure their members’ records are accurate.

“HMRC is offering a free reconciliation service to enable the schemes to match their records against HMRCs, based on employers’ PAYE returns. This service has been available for nearly two years and HMRC urges employers to register for it before the deadline of 5 April.

For individuals shortly reaching their state pension age there is a fast track service to ensure they get the correct pension.”

Let us see how this all ends up working out!

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



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RTI Errors - 5.5 Million Paid The Wrong Amount of Tax

Despite the introduction of RTI, the system that is meant to have done away with many reconciliation "errors" wrt PAYE, a large number of reconciliation "errors" (arising from changes in financial circumstances being picked up at the end of the tax year) are still occurring.

HMRC will be writing to approximately 5.5 million taxpayers to inform them that they paid the wrong amount of tax in 2013/14. It is estimated that of the 5.5 million, around 3.5 million have underpaid their tax.

The average over/underpayment is estimated to be around £300. Those who underpaid will be able to repay via PAYE in the coming year.

Whilst RTI is still bedding in, it is not unreasonable that there will still be reconciliation "errors". However, it is "ironic" that the 5.5 million figure for 2013/14 is higher than the 5.2 million in the previous year.

David Heaton of Baker Tilly, is quoted by the Telegraph:

“RTI was supposed to make PAYE more accurate, not less. So why are there more [errors] 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.”

Kate Upton, a payroll consultant, said:

“Taxpayers have spent hundreds of millions on RTI and employers have had to spend hundreds of millions to use the new system, so we are entitled to expect significantly fewer errors in the reconciliation process.”

HMRC said that the increase in "corrections" (HMRC doesn't use the word "error") was largely down to an increase in the number of people in employment that has come with the recovering economy.

A spokesman said that the effects of RTI had not been reflected yet, and it would eventually lead to a reduction in the number of corrections.

I would be interested to hear from people about their experiences of RTI, and whether it is working to their satisfaction.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



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HMRC Admit To RTI Problems

HMRC have admitted that there are problems with the flagship RTI project, specifically there are tax reconciliation errors between what HMRC say is due and what some PAYE schemes say is due.

I thought RTI was meant to eliminate reconciliation errors?

"We have received feedback that some PAYE schemes have experienced difficulties in reconciling the difference between:

• the tax we say is due, and
• the tax they think is due

We have set up a dedicated team to identify the cause of these discrepancies.

The team is working with a number of PAYE schemes to work through their examples to examine what is causing these discrepancies, and then to resolve them. 

This will also enable us to:

• understand the issue in greater depth, and
• take the steps necessary to prevent them arising in the first place

Each time we identify a root cause we will update our guidance, where appropriate, as soon as possible. We have already updated the View your current PAYE payment and submission position section of our guidance for employers using HMRC's PAYE Online, to make it clearer when we update this information, and what information will be available at any given."

I would be grateful to hear about the progress that the corrective action team making.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



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The Turn of The Seasons

Christmas may come early for some 3.5 million people, who have overpaid their tax in 2012/13 and are now owed refunds by HMRC averaging between £350 and £500.

However, another 2 million people will not be so happy; as they owe HMRC between £400 and £500, because of tax underpayments.

Thus we find ourselves in "year end reconciliation" season again, as HMRC balances its books (so to speak). The reconciliation process returns without fail each year with the depressing inevitability of an unloved season. The reconciliation process is expected to last until October.

The Guardian reports that HMRC has said it is sympathetic to cases of genuine hardship, and those who cannot afford to pay should get in touch. These people may be able to pay what they owe over two or three years.

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Tax Investigation Insurance.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is Solar Tax Investigation Insurance?

Solar Tax Investigation Insurance is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Solar Tax Investigation Insurance



HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

RTI Resources

Resources to help you understand Real Time Information (RTI), the automated HMRC process to collect payroll and tax details as wages and salary payments are made.

In theory it will eliminate annual reconciliations and end-of-year forms such as P14s and P35s.

All schemes/employers with less than 5,000 employees will start to submit RTI in April 2013; those with 5,000 employees or more will start to submit RTI on dates agreed with HMRC between June and Sept 2013.

As per HMRC:

"The move to reporting information in real time is the biggest change to the operation of PAYE in over 60 years.

Under real time reporting, employers and pension providers – or agents, payroll bureaux and other intermediaries acting on their behalf – will send us information about tax, National Insurance Contributions (NICs), student loans and other deductions each time they pay their employees. This will enable HMRC to keep more accurate records and, over time, more people will pay the correct tax.

So what are the essential facts you need to know?
• Migration to reporting PAYE information in real time is mandatory
• Most employers and pension providers will move to reporting PAYE information in real time from April 2013
• We will write to you
– in October to tell you what you need to do to get ready
– in February to confirm the date from which you should start reporting PAYE information in real time
• Most employers already send PAYE information electronically and information reported in real time will also be sent online. Your payroll software will collect the necessary information and send it to HMRC online
• You need to consider your options for payroll. A wide range of commercial software designed for real time reporting will be available from April 2013 to suit employers’ and pension providers’ individual requirements, including some free products. HMRC’s Basic PAYE Tools will also be available for employers who have nine or fewer employees. You can get more information about this at www.hmrc.gov.uk/paye/intro/payroll-system.htm
• You will need to include information in your RTI submissions about all employees
• We will no longer require the end-of-year Employer Annual Return forms P35 and P14, and you won’t need to send forms P45 and P46 to us; instead you will include this information with the information reported in real time
• Employers making payments to their employees by Bacs, using their own service user number, will need to include a cross-reference in the RTI data submission and their Bacs payment instruction, see Getting ready to operate PAYE in real time.

What will not change?
• The way tax and National Insurance contributions are calculated will not change
• You will still need to give employees certificates of tax and NICs paid – form P60
• You will still need to send expenses and benefits returns (P11D and P9D) annually
• The dates by which you must pay HMRC stay the same."

Here are some useful links:

• Articles on this site about RTI
• HMRC RTI homepage
• HMRC FAQs
• HMRC Data Quality homepage
• HMRC RTI webinar - how payroll alignment works
• Real Time Information - What it Means for Employers
• Operating PAYE in Real Time

Tax does have to be taxing.



Professional Cover Against the Threat of Costly TAX and VAT Investigations

Insurance to protect you against the cost of enquiry or dispute with HMRC is available from several sources including Solar Taxwise.

Ken Frost has negotiated a 10% discount on any polices that may suit your needs.

However, neither Ken Frost nor HMRCISSHITE either endorses or recommends their services.

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Get A Grip!

Oh dear Margaret Hodge (Chairman of PAC) continues to be "underwhelmed" by HMRC's less than stellar performance.

She is quoted by the Telegraph, in response to an National Audit Office (NAO) report on HMRC's accounts published yesterday:

"'Sadly it is no surprise that the NAO has found substantial problems with the HMRC's accounts. This year has seen a litany of tax errors and scandals come to light with mistakes made at the most senior level from the permanent secretary for tax downwards. 

The sheer scale of waste and mismanagement at HMRC never ceases to shock me. Without even mentioning the tax gap, in 2011/12 the department wrote off a staggering £5.2 billion of tax owed, overpaid nearly £2.5 billion in tax credits due to fraud and error and underpaid around £290 million. 

In some areas the department is moving in the right direction and has made progress to implement improvement plans. But the department is still plagued by IT problems; limiting, for example, its ability to link together the debts owed by taxpayers across different tax streams. 

With its long history of large scale IT failures, the department needs to get a grip before it introduces its new real-time PAYE information systems and begins the high-risk move from tax credits to the universal credit.'' 

The warning about the oncoming car crash that is RTI was echoed by Amyas Morse (the Comptroller and Auditor General), who said:

''Our high-level recommendations in today's report are that, first, the department should get a better understanding of the costs and benefits of its interventions - such as debt campaigns and initiatives to drive down levels of error and fraud in tax credits.

Secondly, it should prioritise and target its activities on the basis of a better understanding of risks, such as risk-profiling of taxpayers. 

Finally, before implementing significant structural changes, the department needs to be clear about what its future operating model will be: it needs to understand how its business will change following the introduction of real-time information and universal credit. 

There are broad lessons here which reinforce the messages in our recent value-for-money work on tax administration. The department should seek to apply those lessons across the full range of its activities.''

However, HMRC are quite upbeat about things:

"Today's report recognises the new system has bedded in well, and the legacy cases we inherited from the old clerical system are well on the way to being cleared.

We have a long way to go before we are delivering the standards of service to which we aspire, but today's report reflects the real strides forward the department has made, and sets solid foundations for the future.'' 

So that's alright then, nothing to see here move along please!

The key issue, in my humble view, is that both PAC and NAO are "politely" flagging their very real fear that RTI is going to be a clusterfuck. Loyal readers know full well that this site has repeatedly warned of this oncoming clusterfuck that is RTI. Seemingly others are now waking up to the dangers, sadly rather late in the day.
  
Anyhoo, here is the summary of the report, the full version can be read here C&AG report: HM Revenue and Customs 2011-12 accounts:

"The report details progress by the Department in stabilising the PAYE service since the serious problems that emerged when it introduced the new National Insurance and PAYE service (NPS) in 2009. The report also covers HMRC’s performance in managing tax debt; and its progress in tackling fraud and error and in managing debt in respect of tax credits.

In 2011-12, the Department received total revenue of £474.2 billion, an increase of £4.5 billion (0.96 per cent) more than in 2010-11. Tax revenue has continued to recover from the effects of the recession in 2008-09 and 2009-10. VAT revenue has increased by £9.3 billion, largely because of the VAT rate increase and increases in revenue from the oil, gas and business services sectors. Revenue from corporation tax has decreased through turbulence in the financial sector, offset by increased revenue from offshore companies because of higher oil and gas prices.

The Department is part way through its plan to stabilise the administration of PAYE. It has met its target to process 6.7 million end-of-year reconciliations relating to the 2008-09 and 2009-10 tax years. In addition, it is on track to reconcile the 2010-11 and 2011-12 tax years by March 2013; and, by December 2012, to clear outstanding reconciliations predating the introduction of NPS relating to 2003-04 to 2007-08.

Today’s report points out, however, that stabilising PAYE has come at a cost, in terms of the amounts of tax the Department has decided to forgo to keep workloads manageable. In 2011-12, it remitted an additional £12.7 million relating to claims from taxpayers, bringing the total of those claims to £53.7 million.

The NAO recommends that, as a step towards forecasting its overall work load and the operational resources required, the Department complete its review of its PAYE operating model, taking account of the findings from the pilot for testing its new ‘real time information’ (RTI) system.

The value of tax debt at 31 March 2012 under active management stood at £13.3 billion, compared with £15 billion in the previous year. The Department has made progress in implementing its debt strategy through tailoring its approach based on the characteristics of the debt. The Department’s records show a large increase over the last two years in the amount of tax which the Department has decided not to pursue, especially for income tax which was £756 million in 2011-12. This is in part owing to PAYE stabilisation work but also as a result of improvements in the recording of remissions.

The NAO recommends that the Department identify the full cost and evaluate the cost-effectiveness of each of its debt collection activities. It should also accelerate its work to undertake full risk profiling and customer segmentation of its debt balance, as recommended by the Public Accounts Committee in 2004 and 2008.

In 2010-11 (the latest year for which figures are available), the Department overpaid between £2.08 billion and £2.46 billion to claimants as a result of error and fraud and underpaid between £0.17 billion and £0.29 billion to claimants because of error. The Department has not met its target to reduce the level of tax credits error and fraud to no more than 5 per cent of entitlements.

The Department met its target to reduce tax credit debt to £4 billion at 31 March 2012 (down from £4.7 billion a year earlier), but only after writing off old debts of £1.7 billion during 2011-12. It estimates that £2.3 billion of the £4 billion is unlikely to be recovered. The Department’s campaign approach, aimed at collecting tax credits debts more promptly, has had limited success."

Tax does have to be taxing.






Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise



Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

The Government Responds

The House of Commons Treasury Committee recently published this paper on HMRC "Administration and effectiveness of HMRC: Government Response to the Sixteenth Report from the Committee"

The committee's recommendations are in BOLD and the government responses (it is the government that ultimately is in charge and is responsible for HMRC, as noted in an earlier article about Jack, when MP's have a go at HMRC, they should in fact be directing their ire at the government/themselves) are in normal font.

Unsurprisingly there is a large section dealing with staff morale etc, eg "The evidence we have received about the management culture within HMRC, supported by the staff survey results, is very disturbing".

HMRC's handling of post and phones also receives some "comment".

Additionally, according to the government, it seems that the real time information system WILL be implemented on time!

ROFLOL!!

I look forward to writing some pithy articles in 2013 referring back to this government statement.

Anyhoo, here are a few extracts:

"We welcome the fact that HMRC is updating the 2006 KPMG study on the burdens imposed by the tax system to take account of changes over time and urge it to broaden the study to examine the wider “hassle” costs imposed by complying with tax law. This work may be costly. We seek assurances from Government that the findings of the updated study will be acted upon....


HMRC is adopting a new and enhanced customer cost reduction measure. This measure is extended in scope in two regards: it includes individual customers (as well as business customers), and it includes wider customer compliance costs such as where processes do not run as smoothly as they
should or where there is error....


The possible displacing of costs from HMRC onto taxpayers has been a long-running concern for tax agents, businesses and individuals. Not enough is known about the impact of resource reductions at HMRC on the administrative burdens faced by businesses and individuals. It would be counterproductive if ‘efficiencies’ achieved at HMRC resulted in greater costs being placed on the wider economy. Such a result would impede growth. Government will be reluctant to take effective measures to address this issue in the absence of robust evidence about its extent. We urge the representative bodies who made these claims to us to come forward with quantitative evidence about the extent of this problem....


It is important that HMRC staff who are planning or implementing process changes have some personal understanding of the possible impact on the wider public. We recommend that HMRC staff, particularly senior staff, spend time visiting businesses, tax charities and tax practices to see the impact of process changes on the ground....


The Government accepts the Committee’s conclusion....HMRC staff do engage directly with its customers to get first-hand experience of the impact of changes it is making....


We recommend that the Government look again at the profiling of the savings HMRC is expected to make alongside the efficiencies that are expected to deliver them to ensure the two are commensurate and allow a degree of contingency in the case of unexpected problems with implementation. Technological improvements and process changes within HMRC have and will continue to deliver genuine efficiency savings. However, there have been credible suggestions that HMRC has in the past made savings by reducing staff numbers before the enabling efficiencies have been fully realised – with resulting impacts on performance and costs.
(Paragraph 22)


The Government partially accepts the Committee’s recommendation. HMRC keeps profiling of cash and benefits under systematic review and adjusts as necessary to ensure efficiencies and savings remain in step.....HMRC’s Workforce Management Plan is designed to manage the overall reduction in staff numbers and ensure the Department has the right people in the right place with the right skills to deliver core HMRC business, to maximise redeployment opportunities for those staff whose roles may be coming to an end at their current locations and to take advantage of estate reduction opportunities. Wherever possible the Department tries to ensure that staff numbers are reduced in line with enabled changes to work processes and systems, in order to maintain performance...


There is some evidence that the workforce change programme may have led to a disproportionate loss of experienced people at HMRC. We recommend that HMRC examine how it implements job cuts, with the aim of preserving the professional expertise in tax it needs to deliver an effective service, and report back on the changes that have been made as a result of this process. (Paragraph 27)


The Government accepts the Committee’s recommendation. HMRC’s Workforce Management Programme is working to take advantage of estate reduction opportunities as they arise and to maximise redeployment opportunities for those people whose roles may be coming to an end at their current locations. The work to get the right number of people with the right skills in the right place supports HMRC’s role in tackling the UK deficit by both contributing to the reduction in Government spending and by maximising the collection of revenue.


HMRC does not anticipate using large-scale severance schemes during the Spending Review period. Any schemes that are offered will be small-scale and closely targeted at people for whom there is really no other option. HMRC’s main tool for meeting staff reductions is the redeployment of those in need of new roles into other essential departmental operations....



HMRC’s task is made harder by the increasing complexity of the tax system and deficiencies in the underlying legislation. The Government has already announced a package of reforms to the way tax policy is made. Following the O’Donnell Review of 2004 HM Treasury has had lead responsibility for making tax policy, whilst HMRC is responsible for “policy maintenance”. The time has come to review how those arrangements are operating with a view to ensuring the practical impact of new tax legislation is adequately considered even before the consultation stage begins. (Paragraph 29)


The Government does not accept this recommendation....



Staff engagement at HMRC was a major concern of our predecessors throughout the last Parliament. The management team have achieved some small improvements in relation to organisational purpose whilst staff remain dedicated to their work despite the considerable pressures on them and the organisation, some of which originates from outside the Department. However, this cannot conceal the overall picture. Relatively positive staff attitudes towards immediate colleagues and superiors stand in stark contrast with overwhelmingly negative attitudes towards organisational change and the management of the Department. It appears likely that the poor handling of the recent PAYE reconciliations and relentless negative publicity has further harmed engagement and morale. This widespread disengagement is a serious problem for a Department about to undergo further restructuring, and which was described by one witness as “stretched almost to breaking point”. (Paragraph 50)


The Government notes the conclusion. HMRC’s Executive Committee (ExCom) accepts that action is required to improve leadership across the Department and acknowledges the need to strengthen trust in and across the Departments’ leadership. Working with the whole leadership community, ExCom will lead, direct and drive work to address this need. This provides opportunity to deliver improvement across every aspect of leadership and across the entire leadership cadre from ExCom downwards. The way in which this work will be carried out will be intended to build trust through a high degree of involvement and collaboration with people at all levels in HMRC.


The People Function at HMRC will have a clear role in proactively ensuring compliance with standards of delivery and behaviour on HMRC-wide issues and ExCom will hold all leaders to account in respect of these standards.


The Executive Committee will also ensure all leaders, from top to bottom in HMRC, visibly adopt and promote the Leadership Behaviours. ExCom members have also personally signed up to specific leadership behaviours that they will improve. ExCom recognised that it must be seen to be leading from the front in order to rebuild trust across the organisation and address engagement concerns. ExCom members are regularly visiting offices across the UK and proactively seeking views, listening to and acting upon feedback. They will be communicating frequently through intranet messages, video, blogs, staff dial-ins and hot seat forums so everyone knows how they are progressing in addressing concerns to improve engagement and morale.


Any organisation facing the constant job losses that HMRC has faced over the last five years would experience problems with staff engagement. The Spending Review settlement means that some areas are likely to experience greater stability, even expansion, whilst other parts of the Department continue to be reduced in size. Ensuring that engagement does not fall still further in these latter areas will be an enormous challenge for HMRC managers. (Paragraph 55)
The Government notes the Committee’s point.


The evidence we have received about the management culture within HMRC, supported by the staff survey results, is very disturbing. There is a perception that the Department is run on the principles of close control and management scrutiny, with little opportunity for individuals to develop autonomy and exercise their skills. Whilst there is a need for consistency in dealing with people’s tax affairs and appropriate performance management, a culture such as the one described to us is likely to harm staff morale and lead to disengagement and poor performance. (Paragraph 64)


The Government notes the Committee’s conclusion and HMRC is taking steps to build more productive relationships with its people as well as improve the leadership skills, in order to address the perception described.


HMRC is also committed to supporting its leaders in this challenging environment. HMRC is confident that, at the most senior levels, the recent selection processes have enabled the appointment of the right people into the right roles. New leadership behaviours have been introduced and used within the selection processes and as part of the overall development of the organisation. As such, managers at all levels will continue to be assessed against these behaviours as part of the regular appraisal process and used as a foundation to individual leadership development plans....


The National Insurance and PAYE Service should ultimately make PAYE work more effectively and ensure efficiencies across the Department. However, the problems resulting from its flawed implementation have done significant damage to the public perception of HMRC and the tax system more generally. It is crucially important for the credibility of the management team that the 2012 target for clearing open cases is met and that improvements in overall performance follow soon afterwards.(Paragraph 83)


The Government accepts this recommendation and HMRC is on track to hit its 2012 target to clear all old open cases.....


We welcome the move to introduce Real-time Information (RTI). We agree with the professional bodies that the system must be tested thoroughly before full implementation, with full consultation with users and close co-operation with the Department for Work and Pensions at all stages. We note that large employers will Administration and effectiveness of HMRC: Government Response 11 be required to use the new system in January 2013, which is before the system has been tested through one complete tax year. (Paragraph 91)
The Government agrees the Committee’s conclusion that the system should be thoroughly tested for a year....


HMRC has committed to an ambitious timescale to deliver Real-time Information, driven in part by the importance of the project in delivering the Universal Credit. The history of large IT projects subject to policy-driven timescales has been littered with failure. The timetable is made more ambitious by the fact HMRC will still be resolving the legacy of open cases and stabilising the National Insurance and PAYE Service during the project’s early stages. Introducing Real-time Information before HMRC and the Government can be sure it will work correctly would run 12 Administration and effectiveness of HMRC: Government Response unacceptable risks for the reputation of the Department and the tax system. We recommend that HMRC and DWP have contingency plans in place in case a delay becomes necessary. Given the importance of the project we further recommend that the preparations for Real-time Information in both HMRC and DWP are subject to external audit as implementation proceeds, for example through the National Audit Office, to ensure that they are as robust as possible. We expect arrangements to be put in place for the National Audit Office to report quarterly to Ministers, this Committee, the Public Accounts Committee and other relevant Committees to ensure Ministers in both Departments can be held properly accountable for the progress of the project. (Paragraph 93)


The Government partially agrees this recommendation...


We welcome HMRC senior management’s acknowledgement that the Department’s customer service performance has been unacceptable. We are not convinced, however, that the problems can solely be accounted for by the problems with PAYE in 2009–10. The evidence received by us and our predecessors suggest that poor service standards have been an issue for many years and have not been fully reflected in HMRC’s customer service measures....


The evidence we have received, correspondence from the public and the coverage in the professional press suggest that long delays in responding to post at HMRC are endemic. This is unacceptable...


The Government partially accepts this recommendation although it prefers to wait....


It is inevitable that HMRC will have to pursue some taxpayers for outstanding debts and it may have to be forceful in doing so. However, the tone of some of the letters being sent out suggest the “potential consequences” are inevitable unless payment is immediately forthcoming. These letters appear to have been widely used without sufficient thought to whom they were sent to, even being sent to people who did not 24 Administration and effectiveness of HMRC: Government Response actually owe money. Such language is appropriate only where there is strong evidence of persistent and deliberate non-payment; it is completely inappropriate where the amount owed is in dispute, where the amount may be zero, or where the recipient is vulnerable. We recommend HMRC take steps to ensure such hardhitting correspondence is used in a more proportionate way, is better tailored to individual case histories and contains information on the specific debt in question. (Paragraph 168)


The Government accepts the Committee’s recommendation."





Tax does have to be taxing.

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Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise

Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Good News! - HMRC Destined To Fail

Good news everyone, HMRC is now in the process of settling outstanding discrepancies (some going back to 2001).

Seemingly, over this period, HMRC has taken excess tax of £2.5BN and under collected £720M.

The result of the above discrepancies will mean that over 6M will receive a refund in the next few weeks of around £400.

Hoozah!

However, around 1.2M people will receive a bill for £600.

The discrepancies have come to light following HMRC's reconciliations of PAYE, as a result of the introduction of a new IT system.

HMRC note that these discrepancies that are now being highlighted are merely the end product of them clearing a backlog that had built up.

HMRC also note that things will now improve as the new system "beds in".

So are we to assume, and believe, that everything from now on will be fine?

Errmmm....sadly no!

For why?

Well, many reasons actually. However, to keep things simple, here are just two:

1 The new universal credit system is allegedly meant to be up and running by 2013. However, as already noted on this site, it will miss the deadline.

2 The HMRC capability review is now hitting the mass of managers below SCS. We can expect the upheavals emanating from that to cause a significant decline in TAXPAYER (I refuse to use the"C" word) service levels next year.

All in all, expect things to get worse rather than better.

Tax does have to be taxing.

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Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

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Reconciliation

The annual "year end reconciliation" process is due to begin in the second half of July at HMRC. The FT reports that approximately 1.2M people have underpaid tax in the 2010/11 tax year, the average money owed being around £500-£600.

Within the 1.2M are an estimated 160,000 who received the basic state pension for the first time in the 2010/11.

HMRC will also be issuing between 1.7m to 3.5m repayments towards the end of July of around £340 per person.

HMRC is of the view that it is in a "much better place" this year, as the new computer system is "working fast and efficiently".

In theory, once the real time PAYE system is introduced and fully operational by 2014, these reconciliations will be consigned to history. However, as I noted last week, that deadline may well be missed.

Tax does have to be taxing.

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HMRC QROPS provider. Unlock your UK pension and access a 25% lump sum today.

Quote ID code "ABC" when contacting a QROPS specialist.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise

Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Treasury Inquiry

My thanks to the loyal reader who sent me this link to the Treasury Sub-Committee call for evidence to be submitted to their inquiry into HMRC.

In my view, this is an ideal opportunity for HMRC staff to put their case across and have their voices heard.

Source: Sub-Committe Inquiry Into HMRC
"The operation of HMRC has come under close scrutiny in the last few months as a result of the most recent round of PAYE reconciliations. The Department is subject to a significant efficiency programme and must make further savings as a result of the Comprehensive Spending Review. Looking ahead, the Government has made tax compliance a priority, with funding being made available in the CSR, and recently concluded a consultation on PAYE reform.

The sub-committee’s inquiry will build on its predecessor’s work, which identified areas of concern in relation to the impact of the efficiency programme on HMRC’s performance, staff morale within the organisation and its performance on issues such as the payment of tax credits. Its inquiry will focus on the following questions:

HMRC's performance as an organisation and whether it is delivering its key aims;
What the implications are of HMRC's spending review settlement;
Whether HMRC is able to deliver the Government's aims on tax compliance;
Whether PAYE reform is necessary; and
What HMRC’s priorities should be for the future?

The sub-committee invites written submissions on these and related points. Guidance on how to make a written submission is given below.

Please be aware that the Sub-Committee cannot not investigate individual cases....

NOTES ON SUBMISSION OF WRITTEN EVIDENCE

Written evidence should be in Word or rich text format—not PDF format—and sent by e-mail to treascom@parliament.uk. The body of the e-mail must include a contact name, telephone number and postal address. The e-mail should also make clear who the submission is from. The deadline is 12 noon on Wednesday 17 November 2010. Submissions should be no longer than 3000 words. Submissions should be in the format of a self-contained memorandum. Paragraphs should be numbered for ease of reference, and the document must include an executive summary...."

Tax does have to be taxing.

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What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise

Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Back Claims

Tax professionals will be well aware that HMRC has the right to revise an individual's tax submission, on the assumption that there is evidence to show that the submission contained errors, even if it is up to 6 years old.

The result being that tax paid in previous years may turn out to be over/underpaid.

Unfortunately, not everyone is a tax professional (nor indeed can most people afford to pay a tax professional). The average taxpayer (trusting that their employer and HMRC have managed to get the numbers right) will have assumed that once the tax is paid, that is that.

As we now all know, from the recent issue wrt tax reconciliations, HMRC have discovered that there is a significant amount of unpaid tax (£2BN) over the last two years owed by approximately 2 million people due to errors in their Pay As You Earn (PAYE) tax code.

HMRC are in the process of sending out letters to people who they have identified as owing them money.

However, it seems that this is but the tip of the iceberg and many more people will be on the receiving end of a demand for underpaid tax.

For why?

HMRC is extending its investigation (PAYE reconciliations) into earlier years, as it has every right to do.

HMRC has admitted that it is struggling with a backlog of 17.9 million "open case" files, with almost 2 million dating back to 2004.

As noted, HMRC has every right to issue revised assessments for earlier years. However, many taxpayer will simply not be in a position to (or indeed expect to have to) pay several years of underpaid tax.

The issue is not merely one of "reconciling" open items, but one of politics and understanding human nature when it comes to people's attitude to "money in their pockets" and taxes.

The demands for the underpaid tax of the last two years will spark considerable anger, were the government and HMRC to push ahead with demands going back six years the political fallout and public anger will be unimaginable.

Good luck with that then!

Tax does have to be taxing.

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What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise

Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"

Hartnett Speaks

Dave Hartnett, HMRC's permanent secretary for tax, managed to put his foot in his mouth over the weekend.

He kicked off by refusing to apologise for the oncoming storm of extra demands for tax from HMRC, resulting from their well publicised cock up over tax over/underpayments that affect between 6-10 million people.

Hartnett denied there had been any errors, and said he saw no need to apologise.

The Guardian quoted him from BBC Radio 4's Money Box programme:

"I'm not sure I see a need to apologise.

I've read the papers, listened to the media and heard stories of HMRC blunder and IT failure – neither of those are true.

Every country that I know of that has deduction of tax from wages and salaries has to do a reconciliation at the end of each year and we're doing one.

I don't think we are extraordinary. Once or twice in the past the numbers have been very large – sometimes they're less. It depends on how the system has been operated and what issues there have been. We didn't get it wrong. This needs to be reconciled.

We're going to be as sympathetic as we can to anyone who comes to us and says you're trying to take too much money too fast.

If the results of the exercise we're now engaged in show that there are aspects of our plans which are not going to work well for the work we're trying to do or for our customers, we will consider changing them.

I am addressing the issue and I think the nation needs me to do just that."

Tory MP Ian Liddell-Grainger, who chairs the all-party parliamentary group on taxation, thought that Hartnett was talking bollocks wrt the claim that the repayment demands were not due to any "mistake" by the authorities.

Warnings had been ignored for years that the system was not "up to it", he said – accusing Hartnett of showing the typical "arrogance" of senior civil servants.

"It is a mistake. We have been warning for a long time that structurally this is not up to it. It comes down to a 21st century computer system and a 1940s PAYE system."

(Source Telegraph)

I would point out that in the real world Dave those who have, through no fault of their own, underpaid tax (because they assumed that HMRC had got the figures right) will have spent the money on "luxuries" such as food, rent and heating.

Anyhoo, a few hours is a long time in farces.

Within hours of refusing to apologise Hartnett, having been subjected to a barrage of criticism from taxpayers and MPs (George Osborne, the Chancellor, was said to have been incandescent, Lord Oakeshott said Hartnett's response made the BP chief, Tony Hayward, "look like a model of disaster management" adding that Hartnett was "in a world of his own; I wonder what planet he is on? This is the latest in a series of management failures in the HMRC going back many years. If Mr Hartnett cannot see why he should apologise for this one, then he really should be reconsidering his own position."), issued an apology.

He said that he was "deeply sorry that people are facing an unexpected bill.

Everyone in HMRC is working hard to make this as painless as possible.

I apologise if my remarks came across as insensitive. I am working flat out with my colleagues to ensure everyone's tax is correct and the new computer system will help us do this.

It was this new system that revealed the extent and size of reconciliations required – and will help us be more accurate in future – but we do not underestimate the distress caused to taxpayers and, once again, I apologise. ".

(Source The Independent)

As to whether Hartnett really meant it, or was merely acting under orders is another matter.

As to why Hartnett (when he was head of the IR inquiry branch he was personally responsible for leading the HMRC investigation into Ken Dodd's tax affairs in the 1980's - you will recall HMRC lost that one when it went to court), Clasper (who works 2 days a week for HMRC) and "Dame" Strathie (and other senior executives of HMRC) are still in their jobs is something that our "beloved" political masters can answer (but probably won't).

Were these people to be removed/step down, their replacements would doubtless be highly skilled in political spin but lacking the necessary management skills/experience to turn HMRC around.

Frankly speaking it is my belief that, in its current form, HMRC is beyond redemption.

My advice is to undo the merger of IR and Customs, take away responsibility for administering tax credits (or simply replace them with a higher rate personal allowance) then work from there to massively simplify the tax system.

(Factoid: the donkey in the picture is called Dilbert - my thanks to the loyal reader who sent me Dilbert's photo and gave me permission to use it - Dilbert wishes to make it clear than any physical resemblance to Hartnett is an unfortunate coincidence).

Tax does have to be taxing.

Professional Cover Against the Threat of Costly TAX and VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute.

To find out more, please use this link Taxwise

Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.

Click the link to read about: Tax Investigation for Dummies

HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"