Nightmare in Payroll

Why do Employers, Payroll Teams and Accountants have to spend in the region of £17.5 million per annum?

  Here is an extract from the HMRC Spring Departmental Report.

Customer Focus: Putting our Customers at the heart of everything we do; understanding them and responding to their expectations

The reality of the situation is perhaps very far away from this lofty goal, as evidenced by the following piece of research. The Form P43T is issued by HMRC with the sole purpose of obtaining Pay and Tax details of individual Employees who have ceased a particular employment. The Form has to be completed by the Employer to whom it is sent, and therefore is in fact a repeat of the information that an Employer would have already sent in on a Form P45, Part 1.  The wonder is that, although the Employer has already forwarded details of the Employees Pay and Tax at the date of leaving, apparently HMRC have not received the information, or if they have, they cannot find it. The Previous Pay and Tax details of an Employee are obviously required when HMRC are attempting to put an Individual back onto Cumulative PAYE taxation. It is a fact of life that in some types of Employment, there are very many instances of Employees not providing Forms P45, Parts 2 & 3, when they start the employment.  The whole logic behind the multi-part Form P45 is that HMRC will have details of each Employees Pay and Tax on leaving, since the Employer will have supplied the details on the P45, Part 1. It should also be remembered that Employers being under a legislative imperative to supply the information, as those who may have been unfortunate enough to have experienced a PAYE Audit. The Research Team at www.payrollCHAT.com wondered how many times HMRC had to request duplicate details of Pay and Tax, and the answer was as surprising as it was shocking. The information was obtained under a Freedom of Information Request. In the year ending 5^th April 2006, the first year that Compulsory Electronic Filing was operational, HMRC’s Computer Systems issued 3,599,311 Forms P43. These are requests for Pay and Tax details of Employees who have left the employment of the particular Employer. This figure does NOT represent the total number of this type of request, since it is possible for HMRC staff to issue non-computer, or manual, requests. The figure for the year ending 5^th April 2007 was 3,495,044, a reduction of 104,267 or just under 3%, hardly a massive move forward and certainly not an exciting reduction in the work load of Employers. Electronic Filing was supposed to deliver workload reductions and was quicker, faster and easier as often stated by HMRC’s head of Customer Unit, Don Macarthur. 

Looking at these figures of Computer generated requests, over 3 and half million, one could be forgiven for thinking that either:

 

1. Employers failed to send in 3 ½ millions Forms P45, Part 1           or
2. HMRC received 3 ½ million Forms P45, Part 1, but couldn’t match them to particular Employees or just lost them.

 There are some 80 million Forms P14 submitted to HMRC each year and as each Form P14 represents the pay and tax of an employment, the fact that there are computer generated requests for some 3 ½ million duplicate information, that’s approximately 4.5% instances where the Employment Information of an Individual has not been received, or should that be dealt with, by HMRC. The likelihood of the first option, Employers just failing to send in the Forms P45, Part 1, is remote to say the least since it would imply that Payroll staff were taking a cavalier attitude. The second option, that is lost or unmatched Forms or electronic data, would appear to be much more the case. This supposition is reinforced when one looks at the number f Forms P14 which HMRC are unable to match to individuals each year. The number of Forms P14 which HMRC placed in their euphemistically named Residual File, for the year ending 5^th April 2006, was approximately 12 million. Not exactly a drop in the ocean? This failure, for that is what it would appear, by HMRC would be no more than merely very annoying, were it not for the fact that it places a cost burden on what HMRC Senior Management are now calling Customers. This cost burden can be roughly computed as follows: 

Time to locate Record and Complete Form	Time Costs  Hourly Rate	Total Annual Cost(3 ½ million Forms)
30 mins.	£10.00	£17,500,000

 The £17.5 million pounds is very much an approximation, since the time to locate and obtain the required information and the actual hourly rates are deliberately set on the extremely low side. The expression Unpaid Tax Collectors is often applied to those in the Payroll Profession, but perhaps that should now be changed to indicate that there are real and serious Cost implications involved. Perhaps the most annoying part of this situation is the fact that HMRC staff are quick to pontificate and lecture on what Employers and Payroll Staff should be doing, but these same individuals are slow, almost to the point of inertia, in looking at what HMRC processes, or the lack of them, are impacting on their Customers. The vast amounts of Public Funds, which are expended by HMRC, must be channelled into those areas that deliver results for Employers, Payroll Departments, Accountants etc. as well as Individual Citizens. The fact that HMRC have to ask for what would clearly appear to be repeat information some 3 ½ million times a year, at a cost to both parties, is unacceptable to many. 

New Area of Focus 

Our Research Team has begun to take a long hard look at the claims by HMRC that they engage in Consultation Exercises with PAYE Customers.

There have been some in the Payroll Industry who are convinced that the process is being manipulated to ensure that no attendees on these Consultation Committees would be prepared to make any serious objection to anything that HMRC suggests.

We hope to discover if this view is fair and accurate or if it is very wrong. We are actively engaged in reviewing the various Committee Meeting Minutes to see what benefits those involved in Payroll actually get from the current systems.

We feel that this is an area of considerable importance and perhaps of considerable controversy, but when Consultation works well everyone benefits, and that's what we want for all concerned.

The link http://www.hmrc.gov.uk/consultations/terms-of-reference.pdf gives details of the Terms of Reference for the MPPC Employer Group Sub Committee.

Anyone had any input into this "group"?

What Are They?

Open Cases have been officially described by a Senior HMRC Official as follows:-

"At the year end HMRC’s computer system checks whether the tax an employee has paid in the year is consistent with the year end pay and tax information received from employers.  The computer identifies discrepancies or fails to match information to a taxpayer’s record in approximately 30% of cases, which are known as open cases, and must be checked manually.  Open cases are a normal part of the PAYE process and the Department has an annual programme of work to ensure that all of these cases are reviewed and cleared.  The Department’s management information does not distinguish between cases where forms P14 have not yet been posted to the employees’ record and an open case requiring a manual review as a result of inconsistency."

It is worth noting the fact that these Open Cases are therefore caused by eith a failure to post a Form P14 to an Individuals computer record or that there was an Inconsistency of some sort.

The first question that came to the mind of our Research Team was - "Why would HMRC have difficulty in posting Forms P14 to an Individuals Computer Records?" This is particularly pertinent when one considers that the years which they were considering were years in which HMRC had, with considerable fanfare, laid down the edict that Forms P14 which did not meet the published Data Quality Standard, would not be accepted. This of course meant that the Employer would be subject to legislative penalty.

Imagine our Research Teams amazement when they found out that two weeks before the end of the Tax Year 2005/2006, there were 13.7 million Individual Citizens for whom HMRC had not reviewed their liability.

That means that 13.7 million Individuals either had not had their Form P14 posted to their PAYE Computer Record, or there was "an inconsistency". Either way, that is a whole lot of people who haven't been properly reviewed.

Why would there be problems in posting Forms P14 to the records? Well if one assumes that the figure of 13.7 million was a picture of the situation early in the year, that would be a reasonable explanation. This was NOT the case. The figure of 13.7 million relates to a count of these cases taken two weeks before the end of the Tax year 2006/2007. That would mean that some 50 weeks after 5th April 2006 HMRC still hadn't got things right.

Still they did manage to produce vast quantities of "What to Do" messages, but regrettably they were unable to do anything to sort out their own systems.