Calls for RTI Penalty Respite

17 September 2012

Professional tax bodies called on the government to hold back from charging employers penalties under the new real time information (RTI) system for PAYE reporting.

The ICAEW Tax Faculty and the Chartered Institute of Taxation (CIOT) both urged HMRC’s tax department to delay levying penalties on employers for in-year submissions during the first full 12 months of RTI’s operation.

With enhanced penalties for late submissions and careless/negligent errors on self assessment returns causing trouble, tax advisers are increasingly concerned that HMRC is using its penalty powers as a way to generate extra revenue.

Under the new payroll system employers will send information about tax and national insurance they deduct from employees’ wages to HMRC when they are made, rather than at the end of the tax year in April-May, as happens now.

Real-time PAYE is well into its operational pilot phase, with more than 250,000 schemes expected to come on board before the regime becomes mandatory in April 2013.

“We would like to see the whole RTI system working properly, at capacity, for a full tax year, before penalties are imposed,” the ICAEW said. “Given resource constraints this is likely to take some time and we therefore recommend that the penalty regime should not start until October 2015.”

Other ICAEW concerns include:

  • The deadline by which RTI Full Payment Summary returns have to be submitted -normally on or before payday, save for certain “notional” payments when the deadline is extended - will be “difficult if not impossible” to meet.
  • Late nil returns could trigger penalties. The tax system does not require a return of income where there is nothing to report. “Whilst we can understand that a monthly return might be reasonable, we doubt that employers who operate any payment schedule other than monthly will be in a position to know when they need to make a nil return. Is the self-employed publican who is paying casual staff almost daily throughout the year to be required to make 365 returns in the year, even if in some weeks he only makes payments on two or three days? The burden seems to us wholly unreasonable, and a penalty for failure to report that nothing has happened even more so,” the faculty said.

The CIOT raised very similar concerns and also called for an RTI penalty moratorium.

The institute recommended that the penalty model acknowledges an employer’s compliance history. The first RTI default should attract no penalty, a second default should incur an automatic suspended penalty and only a third (and subsequent) default within a specified “default period” should attract actual penalties. This would encourage compliance and minimise the effort for HMRC in chasing small penalty amounts.

With the controversy simmering around its enthusiasm for raising penalties, the tax department is striking a conciliatory stance on the RTI penalty issue.

At the Digita conference in Cirencester this week, an HMRC agent account manager told accountants that “with RTI the focus will be on supporting agents and employers to get things right rather than on penalties."

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