COMPLIANCE
Sue Robinson, partner, and Elliott Mason, senior manager, global employment taxes at EY, discuss how real time information (RTI) gives HM Revenue and Customs (HMRC) insights for audits
R ecent frustrations with RTI reporting have entailed everything from unexpected system challenges causing submission delays, to disagreement between an organisation and HMRC on the data that has been submitted. The latter has been a particularly common frustration across employers of all sizes lately. However, HMRC tends to use audits – including Business Risk Reviews, ‘Know Your Customer’ reviews, national minimum wage (NMW) audits and employer records checks – to raise questions on RTI compliance. This article covers three key RTI challenges and offers some practical tips on how to manage and overcome them. Reconciling payments made to HMRC and RTI data submitted Payroll and tax professionals in every sector are increasingly in touch with HMRC to discuss their pay as you earn (PAYE) tax account balances, and specifically unpaid debts claimed by HMRC. The basic starting point is almost always the same: HMRC, either via late payment and interest charge notices or through contact during an audit or review, identifies discrepancies between RTI data received from an employer and the corresponding payments made for a tax month. The discrepancies are rarely limited to a single tax year, and in several cases, the discrepancies have dated back to the introduction of RTI back in 2012. Where an employer disputes the discrepancies because, for example, their own records indicate payments made match the RTI data submitted, HMRC normally requires the employer to complete stencils with the data available from its own records. The process of completing the stencils, depending on the number of tax months and years in dispute, can be very time-consuming for employers. To make matters even more challenging, completing any stencils shared by HMRC rarely leads to a speedy conclusion of the dispute. Resolution in this space is better measured in months and years rather than days and weeks. In view of the time and effort required to resolve these disputes, employers
should incorporate checks on RTI data, payments and HMRC receipts into the regular payroll process. Such checks are valuable because, in the event of any dispute, the employer starts from a position of confidence in its records rather than one of doubt. These checks should include reference to: l the actual full payment submission (FPS) and employer payment summary totals submitted for key liabilities l the entries in the general ledger relating to both the amounts posted by payroll journals and the those subsequently paid to HMRC l the payment reference used for the monies paid to HMRC and the date payment was made (per accounts payable / bank account activity managed by finance) l the data HMRC makes available via PAYE online accounts in terms of RTI data received and payments allocated. Employers may be tempted to substitute one or more of the above check points in favour of other reports provided by their payroll software or vendor. However, relying on the above records for a final check between the end of the previous pay period and the start of the next one can offer the best possible chance of detecting a discrepancy in real time. Checking the data in RTI returns HMRC is increasingly starting reviews and audits by highlighting anomalies in RTI data. Another HMRC tactic is to use RTI data to inform the areas of focus in a review. Examples include: l queries relating to large accumulated negative values reported in fields of the FPS l low amounts of taxable pay for certain employees (in the context of NMW audits) l queries on termination payments prompted by the number of leavers reported via RTI. Take time to look beneath the reports normally relied upon for payroll sign-off, such as gross-to-net files, and incorporating sense checks of the RTI
data by comparison with the files relied upon to approve payroll. Specific points to check can include: l the total liabilities reported, including PAYE, student loans, National Insurance, etc. l the reporting fields relied upon to report specific items of compensation, including payrolled benefits in kind and pension contributions. Periodic review of RTI files can not only help address the first challenge but can more quickly diagnose issues that could cause genuine tax errors, such as reporting net pay arrangement pension contributions in the field intended for relief-at-source contributions. This was a specific risk area highlighted in HMRC’s August 2023 Employer Bulletin (see https://ow.ly/ KOW550Tx9lm). The introduction of mandatory payrolling for benefits in kind from April 2026 will only expand RTI data requirements and increase the importance of employers understanding and accessing their records.
Know when to consult Getting ahead of an issue involves
confronting it head on. For RTI specifically, this means knowing the times at which HMRC expects proactive contact to avoid challenges. A common area in which employers may not consult at the appropriate time, to the cost of themselves and employees, can be during mergers and acquisitions and where events trigger the PAYE cessation and succession rules. PAYE successions almost always require consultation with HMRC. In fact, HMRC advises employers to let it know if a headcount transfer should be treated as a succession before applying the rules. This is because PAYE successions require careful management from an RTI perspective, as the new employer takes over the management of year-to- date records from the old employer. In the absence of consultation and HMRC support to help ensure records transition correctly, erroneous outcomes such as duplicate employment records and tax code updates can arise, to the detriment of employee income. n
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| Professional in Payroll, Pensions and Reward |
Issue 105 | November 2024
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