RTI – ‘What HMRC did next’Friday, November 4th, 2011
The story so far…
Following the General Election, the new Coalition Government swiftly issued a consultation (‘discussion’) document in July 2010 called ‘Improving the Operation of Pay As You Earn (PAYE)’. The document outlined the success of the PAYE process and how it needed to be brought up-to-date, given that circumstances in 2011 were very different from those in 1944 when the system was introduced. Fundamentally, the consultation document introduced us to the concept of exchanging data in real-time (Real Time Information) and, at a later date, the calculation of tax and payment of employees directly by HMRC (Centralised Deductions).
Moving on, at this initial stage, I reflected that it was actually incorrect to call the above communication with the payroll industry a true consultation. HMRC referred to it as a discussion paper and sought ‘views’ from industry representatives. It had not entered into a consultation period, yet. This discussion document was open from 27 July to 23 September 2010. Whilst these views were being digested by HMRC, the Department of Work and Pensions (DWP) published a White Paper entitled ‘Universal Credits – Welfare that Works’ on 11 November 2010. It is essential that we briefly summarise the contents of this document:
- The White Paper was written as a result of a previous DWP consultation into the current welfare benefit and Tax Credit system entitled ‘21st Century Welfare’, July 2010. This:
- outlined Government intention to reform, simplify and ‘streamline’ the benefit and Tax Credit system
- highlighted the issues of poor work incentives and a complex welfare benefit and Tax Credit system
- stated that the overall Government objective is to make employment a more affordable option as opposed to unemployment and the benefits system – ‘making work pay’
- Following broad support for the above reforms from the consultation responses, the White Paper stated its intention to ‘reform the welfare system by creating a new Universal Credit’. This is part of the Welfare Reform Bill, currently progressing through Parliament
- The Universal Credit will merge Income Support, income-based Job Seeker’s Allowance, income-related Employment and Support Allowance, Housing Benefit, Child Tax Credit and Working Tax Credit into one payment, totally controlled by DWP
- Essentially, and very simply, earnings and personal information will be transmitted to HMRC in real time by the employer. DWP will have access to this information and be able to assess whether the employee is entitled to a Universal Credit to top-up their wages
- As all of this is in real time, the Government sees the opportunity for fraud and over / underpayments being reduced considerably
Digesting the DWP White Paper shows us that RTI and Universal Credits are intrinsically linked. The DWPs’ Universal Credits cannot work without RTI, and these are set to go live in October 2013. Therefore, it follows that RTI must be live before this date. This link is important to realise – RTI is not just about the exchange of tax and National Insurance information, it is about providing personal information as well which will be used to determine an employee’s entitlement to State benefit.
On 02 December 2010, HMRC published their Impact Assessment, based upon the responses and feedback to their July discussion document. As well as a general mention that there was positive feedback from employers regarding the RTI concept, Universal Credits were mentioned by HMRC for the first time as another reason that the project should proceed. Indeed, from not being mentioned at all in July, Universal Credits were mentioned 4 times in the Assessment, as if they had always been there! The concept of Centralised Deductions (CD), thankfully, was not mentioned (however, we do come across CD later in the RTI story, however, I am pleased to report that CD is definitely on the very back burner and we have been spared from adding this acronym to our list!). The Impact Assessment made it clear that RTI was going ahead.
24 hours later, on 03 December, HMRC published their Consultation ‘Improving the operation of PAYE: Collecting Real Time Information’.
To summarise the dates to form a chronological order:
- September 2010 – HMRC ‘discussion’ document ended
- November 2010 – DWP White Paper published announcing Universal Credits
- 02 December 2010 – HMRC Impact Assessment confirms RTI go-ahead
- 03 December 2010 – HMRC RTI Consultation phase starts
The Newsletter will review this next week…….
- Payroll Help 28 October 2011 – RTI The Beginning
- Improving the Operation of Pay As You Earn (PAYE) – HMRC Impact Assessment
- Universal Credit – Welfare that Works
- Improving the Operation of Pay As You Earn (PAYE) – Collecting Real Time Information
- Universal Tax Credit