HMRC hints at addressing PAYE failings
25 October 2018
This article was featured in the November 2018 issue of the magazine.
Mike Nicholas selects key excerpts from recent oral evidence which suggest payroll professionals and the industry face imminent radical change
On 5 September, the Public Accounts Committee took oral evidence from HM Revenue and Customs (HMRC) on its overall performance in the past year, and what it is doing to best serve its customers – UK taxpayers – whilst delivering complex change.
Jon Thompson, chief executive and permanent secretary, HMRC, answered a wide range of questions relating to error and fraud in tax credits and also revealed plans to address failings of employers, pension providers, payroll bureaux and intermediaries.
Edited selected excerpts from the full account of Jon’s answers, which can be found here: https://bit.ly/2DQ95Zr, are given below.
Why is error and fraud in tax credits not reducing?
The tax credits benefit itself is systemically flawed, in that it is an annual benefit cycle.
There are too many dynamics in the benefit itself … and that level of complexity is inherently open to quite significant fraud and error. That is why 19% of cases actually have a fraud or error.
For the income element, every employer puts their real time information [RTI] in. Why has that not smoothed this over and seen that percentage of error and fraud go down?
One issue that we continue to focus on – in relation to closing the tax gap, actually – is the role of intermediaries, and particularly employers and pension fund providers. It is increasingly our view that the standard of administration of pay as you earn (PAYE) is not good enough and is significantly variable.
For some employers – we have drawn up a list of particular kinds of employers – the nature of employment and the hours are quite fluid. They are then not administering PAYE to the standard that we think they should be. That then flows into RTI, and then into this. That raises some other questions about what that means for universal credit.
There is already a significant feature of the tax system, which is, what is the role of intermediaries? But we are discovering, through a more analytical approach to it, that the standards are very variable. You can draw up a list of where we think, ‘You are all really good at it, but you others are not’, and therefore we can make some sort of intervention.
So, have you got a sin list then? Will that ever be public?
Yes. I doubt it would be public. I can tell you that we have gone chief executive to chief executive with a couple of organisations, and said, “Look, you have this responsibility to your own employees.”
Yes, we had some concerns about some public sector employers and we would treat them exactly the same as private sector employers. It is large workforces where there is movement in and out of that workforce, which leads to some poorer administration of PAYE than for a more stable workforce.
There are some (National Health Service) trusts that we do not think are good enough at PAYE.
What are your sanctions, or is it just gentle persuasion at this point?
At the minute, there are not any sanctions, and neither is there any sort of merit award or gold standard or whatever.
We are somewhat more concerned about pension providers – those who are paying out pensions.
The systemic point that I am trying to land is that PAYE administrators – organisations, either employers or pension fund providers – have a very variable standard, and we think we need to do something about that. It is also one of the five main causes of customer contact, actually – the employer gets it wrong, and it is perfectly natural, if you get your payslip and you think, ‘Hang on a minute, my tax has changed and it doesn’t look right’, that you might ring us or your employer.
What we are identifying is that there is a good deal of failure demand, as we are calling it, in this that is driving customers to contact us. So, we think it would be better all round for taxpayers if we tried to do something about intermediaries. We are working up some proposals that we want to put before ministers as part of the spending review.
When you get on to fraud, one of our emerging risks is this payroll bureau question, where we see some cases of payroll bureaux being set up saying that they want to administer payroll for small enterprises but the payroll bureau itself is a fraudulent enterprise and never pays any of the tax of individuals. That is a growing risk, so there are other advantages for us in being more assertive.
So, there is no kite mark or anything at the moment, no basic standard?
Are you saying that you would welcome some sort of sets of standards for these organisations, more regulation?
If you want to reduce the gap significantly you have to put more burdens on other parties to collect the tax for you, and there would be a cost to that. That needs to be a consideration. We don’t think that there are any significantly free shots anymore.
What are the main drivers of undeclared income relating to employment, social security benefits, dividends and rents, which are things that we would think are automatically put into the system under the new digital approach?
The essential problem is that the claimant has to estimate the income for the twelve months to follow, then the onus is on the customer to tell us about any changes. So, a customer will tell us, but they take some time to tell us, and what has happened in the middle is that a debt or otherwise is built up in between.
Are you accepting that there is going to be an element of fraud and error from the benefits system going forward?
Yes, but if you create a welfare system, the complexity of any welfare system – unless it is really simple – will have some inherent fraud and error built into it. Some people are bound to get it wrong or they get it in the wrong time.
I am not complacent about it in the slightest, but in the end it comes down to: ‘Strategically, where is this? Is it a priority or not, and are we going to put any resources into it?’ In the light of everything else HMRC is doing, those decisions have been made by ministers and we are where we are. We can continue to learn, but at best it is going to be an incremental change.