The scheme was piloted before the beginning of this tax year but then swiftly rolled out, with nearly two million firms having from April until today to submit their data in the new way. Many say this was a rushed job. The National Audit Office, in a report published in July, said the process lacked “the resilience needed to maintain the service if there was a major technical failure”, among other shortcomings.
By July the first problems were being reported.
“What seems to have happened is that an employer would alter or correct an employee’s record but HMRC’s program saw that as a new employee,” explained Mr Heaton. “So a new file would be created, effectively as if it were a new worker.”
This might explain why employees are now receiving tax codes indicating that they have lost their job – because, in the eyes of the RTI data, their income was switched to a new, “phantom” employee.
A senior partner at another national accountancy practice, who wished not to be named, said: “This was not properly piloted. You need to run a pilot for a year and then reflect on the outcomes, but this was a small and brief pilot that moved straight into implementation. I am sceptical about HMRC’s IT systems, given its history.”
How could it affect me?
So far an unknown number of employees have been issued with incorrect tax codes. Having the wrong code means your employer or pension provider will deduct incorrect tax from your gross income. In some cases this may not be detected for some time, leading to future disputes.
But HMRC denies there is a large-scale problem. It told The Sunday Telegraph the errors would number in their thousands, but did not reflect a systematic problem, and were being fixed. “The move to reporting PAYE information in real time is a huge change to the system – the biggest in 70 years, affecting over 1.9 million PAYE schemes,” a spokesman said. “As expected with such a major change, there have been some issues. However, these have been comparatively few and have been resolved quickly.”
Ten days ago HMRC published a report following its own investigation into RTI-related problems. It blamed employers for most glitches, and insisted there was “no evidence that HMRC IT systems are calculating incorrectly”.
Mr Heaton said this failed to address the “duplicate” employee problem. “HMRC’s software concludes that the record relates to a separate employee. Is that a system that’s working, or one so poorly designed that it’s too easy to break?”
How can I check my tax code?
Tax codes appear on PAYE coding notices, usually posted to taxpayers before each tax year. It is also on a P45 and sometimes on payslips. It comprises a few digits followed by letters. The digits relate to your tax-free allowance. This is the bit to focus on, because it is a shortened version in pounds of the money you are allowed to earn before tax applies. For example, if your code was 944L then you could earn £9,440 a year before income tax is charged. The letters that follow are code for other factors such as your age, employment status and rate of PAYE taxation.
What else could go wrong?
Both HMRC and individual taxpayers are currently battling with a number of issues – including the requirement for parents to register for self-assessment if they have claimed child benefit when one of them earns more than £50,000 (see page 2). Mike Warburton, of accountant Grant Thornton, said: “It is a struggle for people to get through to the tax office and often they cannot find someone to help them.”
This was borne out by research published recently by website Pleasepress1.com, which found that HMRC’s automated phone menu system offered long-suffering callers a staggering 400 options.
How much is it all costing?
The implementation of RTI is expected to cost HMRC £357m, about £100m more than expected at the outset. Even so, the National Audit Office’s report in July warned that with this sum “HMRC had not budgeted for any extra costs”.
The cost to businesses of meeting the new data filing requirements is also huge. Toby Ryland of accountants HW Fisher & Co said: “For clients with basic payroll requirements it’s probably added 5pc to their workload. For businesses where employees earn shares or have other more complex pay structures, it could be as high as 20pc.”