The All-Party Parliamentary Taxation Group (APPTG) has requested HMRC scale back delivery of real-time information (RTI) for PAYE.
The APPTG claimed the speed at which it is being implemented threatens every business and benefit claimant in the UK.
The RTI system will automatically update employee tax records, so that employees pay the right tax or receive the correct benefits.
RTI is slated for all employers, in time for the October 2013 introduction of the government’s new Universal Credit System, which covers benefits.
HMRC recently announced more than 1,300 employers will now join the PAYE RTI pilot by the end of September.
Under the reformed PAYE system, the RTI function will enable employers to submit payroll data to HMRC via their payroll software as they pay an employee.
It will be used to supply Universal Credit with the earnings information it requires to calculate benefits.
APPTG’s primary concern is that HMRC is currently trialling RTI through what it calls its Interim Solution, which is only able to check, not guarantee, that employers submit information at-or-before the point they pay an employee.
Whereas the originally planned Strategic Solution method would have guaranteed real-time accurate information by attaching the payroll data to a payment instruction.
The group’s report claims that using the Interim Solution could affect the accuracy of Universal Credit and it is concerned HMRC will be unable to deliver RTI through the Strategic Solution unitl 2016.
APPTG suggested that the government can either choose to implement the Strategic Solution, which will guarantee the flow of real-time data to HMRC by using the payments infrastructure, or it can scale back to RTI-light.
Entitled PAYE at the crossroads, the APPTG report branded the current PAYE system, which was introduced in 1944, as problematic because it delivers inaccurate calculations for millions of taxpayers and creates an administrative burden for both businesses and HMRC.
However, the APPTG claimed in its report that HMRC had underestimated the cost of employer software development.
RTI-light would consist of periodic or monthly filing, as occurs in other OECD countries, and as a result removes the complications associated with the ‘at-or-before’ principles.
However, the report warns that this option would mean that Universal Credit ceases to be dynamic.
Finally, APPTG suggests that a single government department, in this case HMRC, should not be expected to consider the full cross-governmental implications of RTI and PAYE.
It recommended that the Cabinet Office establishes a working group, endorsed by HMRC, to “fully explore the importance of the PAYE system and PAYE data across government”.
A National Audit Office report also recently slammed HMRC and its implementation of RTI, claiming that it ‘needs to get a grip’ before introducing the system.