HMRC has published a report summarising the findings of the year-long Real Time Information (RTI) pilot which it says proved to be a 'crucial stage' in the preparations for the new system which went live this April.
The RTI pilot started in April 2012 and by the end of the twelve months over 6.5m records were reported in real time by more than 65,000 PAYE schemes, or around 1 in 8 of all individual PAYE records.
Key issues identified during the pilot included a number of situations where erroneous duplicate employment records were created by HMRC's systems, mostly as a result either of employers changing payroll IDs without indicating, or as a result of payroll software errors in a small number of software packages which have now been corrected.
Each mistake automatically created a new employment which led to additional employer charges and incorrect tax codes and tax reconciliation calculations. HMRC says improvements in its data matching techniques and additional guidance to employers and software developers address this.
HMRC identified a number of separate issues which resulted in HMRC expecting, and pursuing, higher payments from employers than were actually due. Analysis suggested a significant number of the apparent underpayments had arisen from employers not submitting an Employment Payment Summary (EPS) within the necessary timeframe, or not showing the year to date figures to reduce their payments.
HMRC systems expect a payment in line with the full amount of deductions reported on employers' Full Payment Submissions (FPS) for the tax month, or will pursue an outstanding FPS, in the absence of an EPS.
In the report, HMRC describes this issue as 'ongoing', as there is a risk that, when automatic late payment penalties are implemented from April 2014, HMRC's systems will create penalisable payment defaults in the absence of an EPS reporting adjustments to the employer's liability. HMRC says it is monitoring how to support the employer community further to ensure EPS are filed promptly where necessary.
The pilot also uncovered difficulties with plans to stop the issue of a P45 paper form to departing employees once leaving details are notified to HMRC in the regular RTI submission. HMRC agreed as a transitional step that the current P45 format could be retained for communication between the old and new employers, but no longer be submitted to HMRC. The results from the pilot revealed shortcomings where employees with multiple jobs handed on a P45 from their main job as the process could result in the wrong tax code at their new main job. HMRC says this was corrected prior to full roll out.
HMRC says it recognises that 'not all stakeholders agree the HMRC estimate of the admin burden savings resulting from the introduction of RTI'. However, by expanding the pilot, HMRC says it gained insight into how in year PAYE was being operated by employers, and their agents, that it lacked before.
As a result, HMRC identified some permanent specific easements as well as a temporary arrangement that allows small employers more time to adapt to 'on or before' reporting during the 2013/14 transitional year.
The report states that: 'Overall, the earlier resolution of issues flushed out and fixed, or mitigated, during the controlled pilot ramp up alleviated the later costs that both HMRC and employers would have faced.'
