When Real Time Information was first introduced, we were told it would save businesses hundreds of millions of pounds, make tax more accurate, reduce tax credits over-payments, enable dynamic adjustment of Universal Credits, move the planets into alignment and bring about world peace. Okay, maybe not the last two.
With such ambitious aims and a very short timescale for implementation, nobody should be surprised that the result wasn’t perfect.
There are a few quirks of the design of Real Time Information that make some simple problems difficult to resolve. One of these quirks appears on 20th April each year. During the tax year, employers report figures for their employees using a submission called a Full Payment Submission (FPS). This contains total figures for the tax year to date, so if a figure is reported incorrectly, it can be fixed by reporting the correct figure in the next submission. The amount may be allocated to the wrong tax month, but it should work out correctly over the course of the tax year.
As the name implies, Real Time Information should be reported as soon as the information is available. What is less obvious from the name is that HMRC won’t accept submissions beyond a certain deadline – they won’t just fine you, they will reject the submission. On the 20th April, any attempt to send a Full Payment Submission for the previous tax year will be rejected. Instead, HMRC expect employers to send adjustments using Earlier Year Update (EYU) submissions.
These adjustments tell HMRC to apply a given increase or decrease to the figure they already hold. Rather than reporting the correct figure, employers now need to know what HMRC’s system holds and report the difference. In many cases, the employer knows that they have misreported (or omitted) something and they know what adjustment to make. In cases where HMRC’s system has misinterpreted the figures, or where the figures were sent by an absent third party, working out the necessary adjustments can be little more than a stab in the dark.
Last year, both the Institute of Chartered Accountants in England and Wales (ICAEW) and the Association of Accounting Technicians (AAT) compiled lists of their members’ concerns, to feed in to HMRC’s post-implementation review of RTI. You can read more about the trouble with the Earlier Year Update in paragraphs 28 to 31 of the ICAEW’s report and paragraph 2.3.7 of the AAT’s report.