HMRC loses £950m prior to biggest PAYE reform for 70 years

HM Revenue and Customs (HMRC) has abandoned any hope of collecting more than £950m in outstanding PAYE in the build-up to its biggest reform in the pay-as-you-earn (PAYE) system for 70 years, according to the National Audit Office (NAO).
 
The majority of the outstanding collections covered a seven-year period and resulted from a decision to increase the tax threshold for a three-year period and HMRC’s inability to tackle a backlog of unresolved cases.
 
Although HMRC insists there is no direct link between its efforts to stabilise and operate PAYE more efficiently and the introduction in April of Real Time Information (RTI) reporting, its staff and systems were reportedly stretched to meet the March deadline to operate a "normal" service.
 
The NAO says stabilisation of PAYE had cost HMRC less than expected but, due to the backlog of unsettled claims, more than £953m had been foregone to "keep workloads manageable".
 
While HMRC has successfully introduced the new RTI system, the NAO revealed how limitations in the initial pilot programme has led to some parts of the system only now undergoing rigorous testing.
 
Its finance and accounting systems supporting RTI are not fully accredited due to issues made aware during the pilot tests. Although they have not impacted on employers’ ability to submit data, they have weakened HMRC’s efforts to produce and report financial information on PAYE.
 
David Heaton, of Baker Tilly, said the initial pilot covered initial validation of employer submissions of data to HMRC, but testing of transfers from RTI to the main PAYE system did not start until it had gone live:
 
"Given the number of incorrect tax codes that have been issued over the last three months it must be doubted whether the interface is working as hoped.
 
"More worryingly, HMRC’s system has been applying ‘guesstimated’ liabilities to some employer records, allegedly because no filing has been made."

Last updated: 16th July 2013