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HMRC's new RTI system flawed, says Parliamentary group

HMRC's switch to the Real Time Information (RTI) system - designed to modernise the way PAYE payments are recorded and calculated - could face potential problems, a new report has warned.

The All-Party Parliamentary Taxation Group's (APPTG) report raises questions about whether the new system will be fit for purpose and ready in time for its scheduled roll out next year, claiming that the speed at which it is being implemented could 'threaten every businesses and benefit claimant in the UK'.

Under RTI, employers and pension providers will notify HMRC about any PAYE payments, such as tax and NICs, each month as opposed to at the end of each tax year. The system will also support the operation of the Government's flagship Universal Credit welfare programme, which will calculate welfare claims and tax credits automatically based on real time earnings.

However, the APPTG report lists three main weaknesses in the programme; the timetable of roll out causing disruptions, the additional administrative costs to businesses, and its blurred position as an interim or solution to the original PAYE and benefit system.

"RTI is undoubtedly the biggest change to PAYE since its introduction back in 1944, but it should be regarded as a stepping-stone, not the final destination," says the report. "HMRC both can and should go a lot further with the modernisation of PAYE."

Although the group supports the concept of RTI, it raised concerns that HMRC had 'overstated' its business case by underestimating investment, employer migration and software costs.

The current pilot scheme has seen 1.7 million employee records uploaded into the system. The majority of employers will join RTI from April 2013, with all employers due to switch to the service by October 2013.

Furthermore, it argues that HMRC's decision to implement a trial system - known as the Interim Solution - will affect the accuracy of Universal Credit calculations.

"HMRC will only be able to check, not guarantee, that employers submit information at-or-before the point they pay an employee," via this initial system it said.

The 'Interim' system will run until April 2016, when the more robust 'Strategic Solution' - which will attach payroll data to payment instruction - will be implemented.

The report recommends that HMRC should delay the migration of RTI until 2015, coinciding with the move of the majority of tax credits into the new Universal Credit system. It also called for better support for smaller businesses and a dedicated RTI group within the Cabinet Office.