The research focused on micro employers that had received a PAYE late filing penalty from HMRC and those who had made an amendment after the tax year.

HMRC’s latest 46-page research report makes suggestions at what causes error in reporting PAYE in real time for the smallest busineses as well as how the tax authority can improve its services to avoid these errors being made.

The report states: ‘Lack of understanding of how PAYE should be managed, particularly what should be done and by when, creates errors in RTI reporting, resulting in receiving penalties.’

There are mixed levels of understanding about how things should be done and little knowledge of where to get information when non-routine issues, such as maternity leave, arise.

The HMRC support materials are described as ‘difficult to navigate and understand’, so people choose to learn as they go which is where errors arise.

But the report also blames micros and agents, stating: ‘Micro employers’ and agents’ misunderstanding of RTI reporting is exacerbated by their own behaviours (lack of checks and low prioritisation), which also contribute to error in RTI submissions.’

The research shows that HMRC has to focus on better and clearer support rather than providing more of it. This includes having more available resources, such as a guide that takes micro employers through the entire process, highlighting key requirements and providing a summary of important dates.

Penalties should also be clearer and more consistent with explanations about why the penalty has been received and how to prevent it from occurring again.

HMRC’s report Managing Pay As You Earn in real time: challenges faced by micro-employers is here