Administration and effectiveness of HMRC – written evidence

Written evidence submitted by the Institute of Payroll Professionals (IPP)

Executive Summary

The Institute of Payroll Professionals (IPP) was established as an official industry body in 1985 when the Institute of British Payroll Managers (IBPM) was formed. In 1998, the IBPM merged with the Association of Pensions and Superannuation Administrators (APSA) to form the Institute of Payroll and Pensions Management (IPPM), which became the IPP in September 2006. On 10 November the Privy Council approved the grant of Royal Charter. The Institute expects to be rebranded on the 1 January 2011 to the Chartered Institute of Payroll Professionals. Further information about the IPP can be found in Appendix A.

HMRC have over the last few years pledged to make the tax system more transparent, resulting in an easier tax system for individuals and businesses to understand. Although still some way to go overall the IPP does believe that HMRC is striving to meets its aims and objectives. Although there is still some frustration felt from employers about HMRC’s understanding of their business.

Having read the HMRC Business Plan the IPP is pleased to see that additional money has been set aside for programme spending in 2011/12. As stated in the main document the IPP is concerned that the Spending Review has not allowed sufficient money for the administration of enhancements, and is concerned this may lead to a further lack in confidence by HMRC’s customers.

The new HMRC system (NPS) coupled with the PAYE Review and Real Time Information (RTI) should assist in delivering HMG aims on tax compliance.  It will be crucial that the tax compliance policies are adhered to, and the IPP will support HMRC via consultation and facilitation of best practice for payroll professionals.

The PAYE system works extremely well but has not moved with the times. The system does need to improve as the government will not accept the current levels of incorrect tax code issue. Real Time Information will cost employers through their payroll software providers’ copious amounts of money to change the current end of year reporting. However the IPP understand that by using the BACs system it is more likely that HMRC will control the uploading of data at a time to suit HMRC. This in turn concerns the IPP as will this measure really improve the correct issuing of tax codes?

HMRC’s priorities should be improved customer contact whether online or in person.

Better customer contact would assist in changing the tax payer’s perception of HMRC.  The IPP provides support to all government departments but in particular HMRC, and at the same time gives a voice for employers. 

In conclusion we believe that in addition to customer contact, and working with representative bodies that HMRC should strive to deliver a more efficient tax system in line with the Coalition priorities.

Submission of Evidence into the inquiry into the administration and effectiveness of HMRC

1. HMRC’s performance as an organisation and whether it is delivering its key aims;

1.1.1 HMRC have over the last few years pledged to make the tax system more transparent, resulting in an easier tax system for individuals and businesses to understand. The Business Plan published earlier this month confirms that this is still part of HMRC’s vision. The reality is that most individuals do not want to know how the tax system works, just that it does work. One of the most trusted systems until recently was the PAYE system. From anecdotal evidence within the IPP, we found that employees trust their payroll department to deduct the correct tax and National Insurance Contributions. They also understand that payroll operates the system via a tax code.

1.1.2 Earlier this year when the national media highlighted the under and over payments of tax, the credibility of HMRC plummeted. In light of this the IPP ran a survey containing just one question with five possible answers to choose from. The question and answers available were the same as those used by an accountancy representative body. The IPP wanted to understand whether the views of the payroll profession were different to those in the accountancy profession. The comparison has not yet been carried out as the survey only closed on Friday 12 November. However the results which can be found in Appendix B showed that of the sixty six respondents nearly 35% felt that it was a mess, but that the New PAYE System needed time to "bed in". This is also the view of the IPP. The new system was designed to improve the tax system and it did what it was meant to do. Albeit this meant a huge number of tax notifications were sent to individuals with some being an unfavourable notification; it does mean that there are many more individuals now paying the right amount of tax.

1.1.3 In order for HMRC to deliver its key aims it is vital that sufficient monies are allocated to allow them to do this. Many might argue that by stream lining processes or removing one to one contact will reduce costs, however this will not necessarily improve customer service or customer confidence. Anecdotal evidence from the IPP members suggests that there is frustration amongst employers as they do not feel HMRC staff understand their business. This is mainly due to contact centres, rather than being allocated a tax inspector. HMRC have addressed this area to some degree by having Customer Account Managers, but many feel this is only for the large employers, leaving the smaller, more vulnerable employers to fend for themselves.

1.1.4 With HMRC’s core purpose being to make sure that money is available to fund the UK’s public services and support individuals, one must ask is customer service a priority and should valuable funds be provided to improve this area? HMRC states that by 2015 they want to have a flexible and more efficient system when dealing with customers and they have a number of initiatives that the IPP believes will assist them in achieving this goal. The implementation and delivery of the Change Programme will be vital as will the "One Click" registration process.

1.1.5 Employers and individuals were mandated to use online facilities for reporting, and now most embrace this technology and want a lot more communication with HMRC on line. The introduction of Real Time Information may improve this and is discussed later in this submission.

1.1.6 From the IPP’s perspective HMRC have made huge improvements over the last five years, quite often under pressure both financially and due to the lack of resource. The IPP knows that HMRC has highly qualified and competent staff and not enough credit is given to these civil servants. It is the experience of the IPP’s Policy team that the consultation process, albeit some areas could be improved, is an excellent example of how government departments can work with external stakeholders. HMRC’s attitude previously was that they knew what employers/payroll wanted, however over the last five years they have demonstrated that on the whole they ask first before introducing policy or operational changes. There is always room for improvement but in order to do this money must be set aside for consultation.

2. What the implications are of HMRC’s spending review settlement?

2.1.1 Having read the HMRC Business Plan the IPP is pleased to see that additional money has been set aside for programme spending in 2011/12. The IPP would question whether this was a sufficient sum, however without having a breakdown of the spend we need to reserve judgment on the actual amount allocated. The programme spending is set to increase in 2011/12 and again in 2013/14 presumably for the Real Time Information and "One Click" initiatives already planned. The IPP does however have concern that the administration spending allocation will gradually be reduced.

2.1.2 The IPP understands that savings must be made, and that by investing in programmes this should result in a reduction of administration costs. The IPP would however prefer that any new programmes and or technology is allowed a long period to "bed in" before looking to reduce the budget for administration. Confidence levels in new technology have improved, but the future changes should not be underestimated. These require not only an understanding of different technology, but a different way of communicating with HMRC. A major culture change will be required by both business and individuals. It will also require culture change within government departments. Morale is believed to be low now in HMRC and other government departments, it is vital that time is given to change attitudes, otherwise any new advances will not be received well, and will surely set them onto the path of failure?

3. Whether HMRC is able to deliver the Government’s aims on tax compliance

3.1.1 From a PAYE point of view, various changes to the Finance Act have introduced anti-avoidance measures e.g. mandatory e-filing, penalties for filing paper returns, and for those who do not submit the correct in year payment of PAYE and National Insurance Contributions.  The new in-year regime has replaced the previous surcharge regime; however for employers there still remains an end of year expectation as HMRC do not have the required systems and processes in order to police the new risked based regime.  The new NPS system coupled with the PAYE Review and RTI should assist in delivering HMG aims on tax compliance.  This comment links to the issue below and supports the need for a PAYE Review.  Based on what we know to date the PAYE Review proposals should help in achieving tax compliance.

3.1.2 It will be crucial that the tax compliance policies are adhered to, and the IPP will support HMRC via consultation and facilitation of best practice for payroll professionals to make sure this happens.

4. Whether PAYE reform is necessary?

4.1.1 Based on the dissatisfaction from HMRC’s customers after the P800 release it has to be reviewed. The PAYE system works extremely well but has not moved with the times. When it was introduced most people had one job, and stayed in that job until retirement. They would then receive one pension, normally from the State.

4.1.2 An increasing number of people now have two or more incomes, such as students and part-time workers. Add to that the economic climate where some have to hold two jobs the previous system (COPS) was unable to cope. The intention of NPS is that it will know an individual’s circumstances for tax purposes and allocate the tax code splits accordingly.

4.1.3 Unfortunately this system has not had time to bed in, and a knee jerk reaction was seen by government to improve the system. In fact many government ministers were implying that the system was broken! This is not a view shared by the IPP.

4.1.4 The system does need to improve as the government will not accept the current levels of incorrect tax code issue. There were two solutions presented to businesses first one being the introduction of Real Time Data followed by Centralised Deductions.

4.1.5 The IPP and its members have on the whole supported the RTI concept but did not agree that Centralised Deductions would reap a return on investment for either HMRC or the individuals.

4.1.6 Due to the knee jerk reaction the concern of the IPP is not whether Real Time Information should happen, but the timescale in which it is to happen. Many believe within the IPP membership that it is being driven by politics, and the need for the coalition to "make their mark" rather than helping HMRC be more efficient.

4.1.7 Real Time Information will cost employers mainly through their payroll software providers, copious amounts of money to change the current end of year reporting. This is not due to having to complete payroll returns, as most organisations will carry out a reconciliation each pay period anyway, but more so in the way that communication is sent to HMRC.

4.1.8 Employers invested in technology to meet the online filing conditions, however the intention is that employers will need to use a different method to communicate in the future via the BACs system. The IPP in its response to the short consultation on RTI found that its members would prefer to use the existing technology rather than use the BACs technology. It is the belief of the IPP that it was assumed that most employers pay their employees via BACs. Whilst this will be an accurate statement employers are not convinced that using this method to transmit data to HMRC is the right way to go.

4.1.9 RTI would work best if information from employers could be uploaded in the NPS and act on the information in real time. However the IPP understand that by using the BACs system it is more likely that HMRC will control the uploading of data at a time to suit HMRC. Although the IPP understands the need for control to ensure the NPS can handle it, we are not yet sure we understand how this will improve the issuing of tax codes on a more timely basis, as the data could be out of date if two transmissions are submitted to HMRC by different employers and both not acted upon?

4.1.10 The introduction of RTI would also need to encompass benefits in kind as the IPP believes this might be a major contributor to individuals not being on the right tax code.

4.1.11 In respect of the proposal of Centralised Deductions the IPP does not currently support this way of calculating tax and NI etc for individuals. Contrary to belief this is not due to fear of losing jobs within the payroll profession, more so that the IPP does not believe individuals have sufficient interest in the tax system to ensure their tax codes are right. Employers and payroll professionals pride themselves in carrying out the payroll calculation of gross to net to ensure their customers i.e. employees receive an excellent standard of service, and receive their pay accurately and on time.

5. What HMRC’s priorities should be for the future?

5.1.1 Improved customer contact whether online or in person. There is quite often a lack of consistency within HMRC contact centres. This in turn leads to employers carrying out their obligations in different ways, all approved by HMRC. This then results in HMRC not having accurate data to ensure compliance or assistance is delivered in an effective way.

5.1.2 Better customer contact would assist in changing the tax payer’s perception of HMRC.  Being able to build relationships with your tax office would mitigate some of the other processes that let employers down.

5.1.3 From a stakeholder point of view, it is important that HMRC continues to recognise the skill and knowledge of organisations such as the IPP.  The IPP provides support to all government departments but in particular HMRC, and at the same time gives a voice for employers.  The IPP is able to assist all parties by identifying issues that would prevent HMG and employers from suffering unnecessary burdens and costs.

Appendix A - About the Institute of Payroll Professionals

The Institute of Payroll Professionals (IPP) was established as an official industry body in 1985 when the Institute of British Payroll Managers (IBPM) was formed. In 1998, the IBPM merged with the Association of Pensions and Superannuation Administrators (APSA) to form the Institute of Payroll and Pensions Management (IPPM), which become the IPP in September 2006. On 10 November the Privy Council approved the grant of Royal Charter. The Institute expects to be rebranded on the 1 January 2011 to the Chartered Institute of Payroll Professionals.

The IPP is the only membership body for payroll professionals in the UK and currently has in excess of 5,000 members enjoying a range of benefits.  In addition, the IPP is the UK’s leading provider of qualifications, training and consultancy for payroll, and has a Pensions Faculty responsible for delivering qualifications and membership services to those responsible for public sector pensions.

The mission statement of the IPP is:

Leading payroll and pension professionals through education, membership and recognition

Education

The IPP is the leading provider of qualifications, training and consultancy for payroll professionals in the UK. Our payroll qualifications programme was originally formed in 1991 and is updated each year. The latest developments to our payroll programme led to the introduction of a Foundation Degree in Payroll Management accredited by Worcester University being introduced in September 2008, which utilises online and face to face learning methods. The payroll qualifications programme goes all the way to MSc in Business and Payroll Management and aims to get more payroll staff in the boardroom.

 

Our pension qualifications currently focus on Local Government Pension Schemes and are being extended to all public sector pensions going forward.  The most recent development is the introduction of the Foundation Degree in Pensions Administration and Management for students enrolling for Autumn 2010.  This new qualification is accredited, subject to approval, by Leeds Metropolitan University and covers all the latest developments in the Local Government Pensions arena.

As well as our industry recognised qualifications, the IPP boasts a wide range of payroll training courses to increase professional knowledge in specific areas such as statutory payments, termination payments, overpayment recovery and changes to legislation.  And we have recently re-launched our Pensions for Payroll Professionals training course.

Membership

The IPP is the only professional body for individuals working in payroll in the UK, and has a separate Pensions Faculty to represent public sector pensions professionals.  The IPP has an excellent position within government to represent our members’ views, enabling us to keep you abreast of all the legislation changes that have come into effect or are in the pipeline through a number of communications channels including:

 

·         News On Line – weekly e-newsletter

·         PayrollProfessional magazine issued ten months a year

·         Advisory Service helpline which you can call on during office hours

·         Members only sections of the website to network and discuss topical issues

 

 

Recognition

 

The IPP is working hard to increase recognition towards the importance of payroll in business and achieve Chartered status for the profession. The policy team are now representing members’ views at over 60 government consultation forums which highlights that HMRC and other government departments recognise the important part that payroll plays in the UK economy


Appendix B – Survey results

What do you think of HMRC’s handling of the 2010-11 PAYE reconciliation process?

Answer Options

Response Percent

Response Count

PAYE system is 66 years old: bring on real-time information.

10.6%

7

Yes, it's a mess, but let NPS bed in and work with HMRC to make it better.

34.8%

23

Yet another episode in HMRC’s long history of IT disasters.

25.8%

17

A result of cutbacks & declining morale - more funds needed.

13.6%

9

Proof that HMRC is not fit for purpose. Current managers must go.

15.2%

10

answered question

66

skipped question

0

November 2010