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RTI: right and wrong at the same time

RTI is a step in the right direction, but it is also a step in the wrong direction.

You couldn't find more ambiguity in a single line, but it comes from a report that is unequivocal in its concern that Real Time Information, HM Revenue & Customs' programme for employers to provide it with up-to-date information for PAYE, could be in for some serious problems.

The All-Party Parliamentary Taxation Group (APPTG) has flagged up its concerns within its new PAYE at the crossroads report. RTI is a major feature on the taxation landscape and will play a big part in the Department for Work and Pensions' Universal Credit programme. The APPTG is concerned about weaknesses in its implementation that could create future problems for both programmes.

Jamie Black, the report's author, said at the launch event that the problems are rooted largely in RTI being driven by policy rather than business. It was originally conceived as a step towards improving the PAYE system – along with a centralised reductions system to replace employers' responsibility for passing payments to HMRC – but when the coalition came to power it was enlisted as a component of the Universal Credits programme, one of the government's flagship policies. This has prompted a change in priorities, created difficulties for RTI, and could damage the DWP programme.

"With Universal Credit, they've built the roof without building the foundations," Black said. "Universal Credit will have shakier foundations from the start."

It is a highly detailed report that identifies three main weaknesses in the programme: the timetable, the estimates of costs and benefits, and the tension between an interim and a strategic solution.

"We could not understand the timetable, especially when we looked at auto-enrolment as well (the DWP programme under which companies will have to register staff in workplace pension schemes)," Black said. "Why is RTI being rolled out in a year and auto-enrolment over five years?"

The deadline of October 2013 has been set to facilitate the introduction of Universal Credit, but this is causing worries on two fronts. One is that, although HMRC has been working closely with the payroll softwareindustry, the companies involved may not have time to fully develop their products. This has been fuelled by warnings from the Business Application Software Developers Association (BASDA). It chair, Kevin Hart confirms that although the industry is trying to meet the timetable it is a real concern.

"We still have to clarify areas like the specifications and business rules, which has made it difficult," he says. "HMRC is still learning, and there are tight timelines created by Universal Credit." He adds that the effort has been distracting BASDA members from other changes demanded by their customers.

The other worry over the timetable is that employers will not be ready to play their part. The APPTG's stakeholder research found there was a lack of awareness of RTI in the HR departments of SMEs and large organisations, with only 34% of respondents having heard of it. This is reinforced by the results of surveys conducted during the spring of this year by KMPG and PwC.

The report acknowledges that HMRC has been trying hard, but says there is still a lack of clarity and understanding, and that the migration is a business challenge for employers that needs time to overcome. It includes the example of the requirement for a Full Payment Submission (FPS) with all the relevant data items for an employee. To begin providing these, businesses will have to conduct an audit of existing systems and their internal information flows. A similar process would have to take place for the provision of the Employer Payment Summary, which includes details of statutory payments that tend to be handled by HR rather than payroll teams.

HMRC's business case also comes under scrutiny, with claims that it will have to spend more than the allocated £108m. Also, it has neglected the software costs for employers, who will have to spend considerably more on migration than the £150m identified.

In response, a spokesperson for the department says it is working with employers and software providers to roll out RTI to all employers from next April, and that the programme is on track and will be paying for itself as early as next year.

"More than 500 employers are already reporting PAYE information in real time for more than 1.7 million employees," he says. "It is the single biggest innovation in the administration of the tax system since PAYE was brought in during the Second World War.

"Its introduction will remove administrative burdens from businesses of around £300m a year and will support the operation of Universal Credit. The RTI business case remains one of the strongest in government and the programme pays back twice in every year."

Tension between the strategic and interim solutions derives from the shelving of an earlier plan for a system in which the FPS files could be attached to payments and sent through the Bacs and Faster Payments channels. This has been delayed until at least 2016, and an interim solution will enable employers to send the information to HMRC through the Electronic Data Interchange or the Government Gateway. They will not, however, be able to attach an FPS file to payments, and the report says this will make it harder to guarantee the accuracy of the information.

This is a contentious point. HMRC says the accuracy of matching in the pilot was more than 99%, and BASDA has defended the approach taken by the department. Hart says that only a small number of business use Bacs, and questions the point on the accuracy of the information. The association lobbied against the strategic solution and is more at ease than the parliamentary group with the interim solution.

HMRC also disputes one of the central assumptions of the report, that it should renew its work on a centralised deductions system, which would take over from employers in calculating and removing PAYE. The spokesperson says the government considered it in detail in 2010 and rejected it as over-complex and too expensive.

This highlights the fact that the APPTG does not fully agree with the department on where it should be going; but it is broadly supportive of RTI, and the tone of the report is one of constructive criticism rather than dismissal. It makes a series of recommendations, including more certainty for the strategic solution's timeline, setting up a website to support migration, and prioritising business needs over the Universal Credit policy deadline.

Ian Liddell-Grainger, the group's chair, says in the report's foreword that RTI should be regarded as "a stepping stone, not a final destination". But there are clearly different views on how to plant a foot on that stepping stone and where the final destination will be.

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