Improving the tax experience

Given the amount of money raised through income tax collected through PAYE and national insurance contributions (NIC) each year, not to mention the apprenticeship levy and the collection of student loans, it never ceases to amaze me how little ongoing focus there is on improving the experience for taxpayers, employers and software developers.

Back in 2013, the government spent hundreds of millions of pounds on the rollout of real time information (RTI). Not only did HMRC disband its Customer User Group immediately on going live (note to all government project managers: it is not over when you go live – the start of business as usual is when you really earn your stripes fixing the grit in the system, or even the boulders!), but the RTI post-implementation review action plan published in December 2017, with a March 2019 deadline, never got implemented at all.

In its submissions to government, ICAEW’s Tax Faculty always brings to the government’s attention the areas of policy, legislation and operations that could make a difference for government, as well as stakeholders. However, it’s fair to say that it is hard to get traction when hard-pressed civil servants are delivering the next ministerial priority. There never seems a moment for them to take stock.

This is a mistake. If you add further layers of complexity to already shaky foundations, whether that is in respect to technology or to legislation, there is only going to be one outcome: a poor customer experience and an increasing tax gap – whether that is through wilful exploitation or innocent error.

Technology

There are still huge wins to be made in the use of technology in the employment tax arena. The most basic of all is the potential for RTI to be used as a two-way communications channel rather than just a submission route of employers and agents into HMRC. It seems parts of HMRC are unaware that RTI is a ‘one-way street’.

For example, when changes needed to be made to the employment allowance when it was targeted in 2020 and became state aid, the policy team assumed that an accepted claim could be notified to employers electronically, until we pointed out that a posted letter was the only option – how very 21st century! That experience will be repeated again in April 2022 when employers wanting to recover employer’s NIC in respect to veterans employed in 2021/22 have to apply for a payable order by letter. The option to do this via payroll software would require developers to offer this in their 2022/23 software for a prior year which most have, understandably, declined to do.

HMRC can only nudge/remind employers about RTI ‘offences’, especially newly established employers, via the pointless generic notice service (GNS) issued to the portal. But a GNS, as its name suggests, is of no use to agents as it does not identify the client who has missed a deadline.

Penalties for late submission of RTI data still have a three-day easement built in that has been ‘renewed’ every year since 2013. Will HMRC soon tighten up on this, given the points-based penalty regime due to be introduced for VAT and income tax self assessment? If so, the GNS functionality will be in desperate need of an overhaul.

When software changes are required, there is absolutely no recognition of the lead time that is required by the software industry (Lord Carter recommended that test services for software developers should be provided for all services at least six months before major changes in his Review of HMRC Online Services in 2006), nor of the level of detail. We’re too often simply told “here is a new field for the full payment submission”, rather than “here is a specification of the new piece of data we would like calculated and provided by employers/agents”.

It is fair to say we did have this relationship 10 or more years ago, but as senior tax policy figures at HMRC have retired we’ve seen that understanding of the software development cycle evaporate. Of course, it does not work both ways. When HMRC is asked to deliver a technical payroll solution, it can take years working with its technical partners.

We’ve seen that most recently at the 2021 Autumn Budget, when 1.2m low-paid employees were told they would have to wait another four years before they would get their top-up of pension tax relief. It is also the reason why employers have to make a manual request for the veterans’ NIC refund. HMRC was unable to introduce a new NIC table letter in April 2021 – the industry side could have done just that.

Legislation and devolution

Far too often, announcements and consultations are Westminster-centric. By that, I mean focused on just one country within the UK at the expense of the other three. We have had a shared taxation model with Scotland and Wales for several years now, but even that does not seem to have struck a chord in relation to announcing something as ‘UK-wide’ when it is not.

In respect to Northern Ireland, things are even more complex as employment law is a devolved matter. Why does that matter to the Tax Faculty, you might ask? Because it impacts everything, from the level of redundancy pay to statutory payments, to holiday pay.

I’m often told by policy makers: “Well, it makes for a better soundbite just to say it’s UK-wide rather than be specific as to which country this applies in.” I’m sorry, but for many employers with nationwide coverage this is just not good enough.

This will come into sharp focus again in April 2022 as HMRC has asked all employers to include a message on payslips for the 2022/23 tax year as follows: “1.25% uplift in NIC funds health & social care”. Putting aside that this is an overtly political message for any employer to be asked to cascade, it is simply not true. The increase in NIC is UK-wide, but the spend is devolved so each nation decides what to do with any funding that comes its way.

Operational considerations

In the mad dash to change PAYE and NIC each tax year, we forget the easy wins that could make the tax system run more smoothly (and, of course, we’ve recommended these on a regular basis to anyone who will listen). Here are just four examples:

• Sort out the week 53/54/56 anomaly where those with weekly, fortnightly and four-weekly pay frequencies underpay tax when they have more than 52/26/13 pay days in a year. It would be easy just to divide the personal allowance by 53, 27 or 14 if we were allowed to.
• Abolish tax code BR and use 0T. It does the same but better, as it is not a blunt 20% instrument that leads to tax arrears.
• Allow employers to delete RTI records for employees who do not start (commonplace in service sectors).
• Re-engage with stakeholders on solutions to duplicated records, a too-frequent occurrence in many business-as-usual activities such as moving agents or changing payroll software.

Since the move of policy ownership to the Treasury and the outsourcing of system development to external partners, there has been a distinct shift in the engagement with stakeholders on operational issues. While consultation forums still exist, they tend to focus on new policy – not current process improvement.

There is a huge appetite from the stakeholder side to take time out of our businesses to offer our knowledge, but it can feel as if this just presents unwelcome extra ‘work’ for HMRC as opposed to being seen as beneficial to reducing its costs as well as improving the taxpayer experience.

Final thoughts

So, after over 30 years in the payroll arena, is my profession in a better place than when I started? Well, we have moved away from mountains of paper into the digital world of RTI and we have embraced becoming pension experts, as well as an ever-expanding portfolio including student loans, statutory payments, apprenticeship levy payments and 18 types of court orders. We now deal with four very distinct countries in the UK and many of us are global payroll specialists too.

But ultimately our raison d’etre is still to pay employees accurately and on time. Let’s hope that in the next 30 years we can say employers and agents are seen by HMRC as partners, so we can make a difference for the tax authorities and our own businesses. 

About the author

Kate Upcraft, employment tax specialist, Deputy Chair of the Tax Faculty’s Employment Taxes and NIC Committee and Director at Kate Upcraft Consultancy Ltd