This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Exchequer Secretary to the Treasury David Gauke speaks at the Payroll World autumn update conference on RTI.
Thanks Martin [Kornacki, editor, Payroll World]
I was very pleased to be invited here today. I’d like to use my time this morning to reflect on the introduction of Real Time Information – or RTI.
I’d like to spend some time reminding people of why we’ve introduced the changes we have.
I’d like to talk about the advantages that the new system is offering employers, the government, and – most importantly – the UK taxpayer. And I’d like to reflect on the challenges coming up, particularly with regards to further digitisation in the payroll system.
But first I’d like to take this opportunity to thank you – as payroll professionals, bureaux, software experts, tax agents and employers – for the crucial role you’ve all played in helping the government deliver the change to Real Time Information.
Without your support — and some of the challenges you’ve thrown at us — we wouldn’t have made the progress we have. When we launched the RTI pilot – back in April last year–there were just ten employers involved. And today – just over eighteen months later – over 1.7 million employers and pension providers, covering more than 46 million individual PAYE records, are reporting payroll information to HMRC in real time.
This isn’t just the largest organisations. Nor is it just those with the most advanced technology. This is employers of every size and shape, in every industry and in every city and town across the UK.
And so the speed with which you’ve all managed the change is remarkable.
The need for change
In fact, it is all the more remarkable when you figure that this is probably the single biggest change in the administration of PAYE since the system was first set up nearly 70 years ago.
The last system was simply outdated.
While technology has developed significantly, making the transfer of information much easier…
And while job fluidity has increased massively, meaning many more people change job every year, or hold down more than one job or pension at any given time…
The PAYE system had largely stood still, and maintained pretty much the same format as it did upon its inception.
The new system though, offers huge advantages.
It’s better for businesses.
The old system of annual returns created a significant administrative burden during what for many of you is one of your busiest times of the year.
While reporting PAYE information in real time uses technological advances to integrate PAYE returns with normal business routines.
91 per cent of pilot employers we surveyed this year, said that the end of year process took less time – and almost all thought it would take even less time next year. So the new system will make the process cheaper and more efficient for you. The new system is better for government.
Because under the old system, HMRC didn’t receive all the information it needed until after the end of the year, and only then could they adjust people’s tax bills when their circumstances had changed.
The new system meanwhile, allows us to resolve issues much more quickly.
HMRC is already using RTI data to build in additional checks when people start a new job, to make sure that more people are on the right tax code from the earliest opportunity.
The Department for Work and Pensions is also using this real time information, to calculate Universal Credit to people in the pathfinder pilot areas.
And I know that colleagues at DWP have really clocked the potential of this, and are already looking to see how they can use this information to improve administration of their other benefits.
Most importantly though, the new system is better for the taxpayer.
Better because, over time more of them will actually pay their tax ‘as-they-earn’ rather than face bills after the end of the tax year. Better because – by taking advantage of modern technology, and moving to a real time process – we are running the service more efficiently. And better because it allows us to crack down on tax and benefit cheats more easily, and to make sure that everyone only claims what they are entitled to.
And this – during a difficult economic period –releases greater revenue to fund vital public services.
Year of transition
So I hope you’ll all understand the reasons why this change was such a passion of mine. And why I think it will make such a key difference in a number of areas.
Of course – as you would expect with any major change – there have been issues that HMRC has needed to address, as millions of employers and pension providers – and HMRC - got to grips with a new system and a new routine.
And I’ve been very clear that HMRC’s role here is to support employers in making the change and in meeting their new obligations.
That’s why – after listening to you – we introduced a concession to help ease small employers into the new process. It’s also why we decided that there should be no in-year late filing penalties in the first year.
And supporting business throughout this transition has been – and will continue to be – a priority, as we look towards the future.
Although over 90% of PAYE schemes are reporting in real time – and 99% of the very largest employers – HMRC are working to bring on the last remaining employers.
HMRC has recently written again to those who have not yet started to report in real time.
There is a process in place if there are real business reasons why any employer has not joined. So if you or your clients are having problems – I’d urge you to act now, rather than wait until April 2014 when the new penalties come into effect.
I’d like to turn shortly to the big developments beyond next April on RTI. But first, I’d like to quickly address two issues that I know many people here are interested in hearing about.
And those are on-or before. And our contact centres.
On or before
‘On or before’ reporting is – I think – terribly important for two key reasons. First, our experience with the pilot told us that making PAYE and payroll part of the same process is the key that unlocks administrative savings. And second, reporting on time is also the key to making Universal Credit work.
Any time lag between the individual being paid and the employer reporting to HMRC or DWP could result in the wrong amount of Universal Credit being paid.
That said we have continued to seek views about on or before reporting, and HMRC is actively reviewing this issue. And we’ve also commissioned independent market research to look at whether tightly targeted changes are needed here.
On contact centres, I’d just like to say that HMRC is working hard to improve its customer service, including the time taken to get through to their contact centres. They’ve invested significantly in training, in a way that will ensure they can cut down on waiting times.
And they’re currently piloting the use of Intelligent Telephony Automation, which will replace the current touch tone system with a speech responsive system.
This should help deliver a consistently higher quality of service, even in peak periods of demand. And make it much easier for stakeholders – like you – to deal with HMRC in future.
As we move towards the future, there will be further challenges and there will be further opportunities on RTI.
From April 2014, Real Time Information will start to deliver reductions of £280 million a year in tax credit overpayments, error and fraud, as well as significant benefits from faster collection of tax.
And HMRC is currently exploring new ways to use RTI to maximise improvements for customers and to harness other efficiencies for the tax and benefits systems across government.
Of course, we are treading carefully – and will make sure that the system is bedded in before adding any further capability.
RTI also provides a regular, electronic, two-way communication channel between HMRC and employers, and I know HMRC plan to use that to share information and make updates without increasing burdens on employers.
It is enabling them to deliver support to businesses – they’ll be doing so through the new Employment Allowance from April 2014.
And by the following April, HMRC will be using the richer data that RTI provides to give individuals the opportunity to see their latest pay, tax and national insurance information through a personalised digital account.
So step-by-step, HMRC is transforming the PAYE service they offer so that it is truly ‘digital by default’ — something that I feel very strongly about.
The opportunity provided by auto enrolment
The other thing that I feel very strongly about is using these digital developments – and using payroll effectively – to make it easier for people to save for their retirement.
Especially as I’ve now taken on the responsibility for auto-enrolment in the latest reshuffle.
Before the recent financial crisis, one in four households had no savings at all. And even today, two thirds of people approaching retirement don’t have a private pension. If such low levels of savings fail to increase – or even fall – over the long term, this could have a huge impact not only on individual households, but also on the welfare system of this country.
And so we really need your help in making it easier to put money aside for the future.
As you all know, millions of workers are now being automatically enrolled into a workplace pension by their employer. That figure has already passed 1.6 million in the past 12 months, and a further 30,000 employers are lined up to introduce automatic enrolment at the start of the next financial year.
As with RTI, I would urge employers to start planning early to obtain pensions schemes and to begin adapting their software accordingly.
I know that many small and micro businesses are new to pensions, and many will be looking for help advice or tools. And if you’re going to introduce auto-enrolment next year, I would strongly encourage you to work with the regulator to make sure you’re aware of and understand these changes.
Again, as payroll professionals, the pensions regulator really needs your support in preparing employers for what are fairly big changes.
I hope I’ve made clear this morning just why payroll will be so important over the next few years.
Not only will it help us to improve the amount of long-term saving. It will also help to ensure that we run an efficient tax system in future.
I hope I’ve also made clear why I think the introduction of RTI is so important.
I’m sure you’ll have lots of questions on it, but I’d like to support the managing editor of a respected publication in praising “HMRC for doing something right”.
There are certainly challenges ahead – both in terms of getting those businesses who aren’t yet, on-board. And in overseeing future developments, like the employment allowance. But I’m sure that if you continue to work, collaboratively and constructively with colleagues at HMRC, we can overcome these successfully.
I – for one – expect to see HMRC bringing in ever-more revenues and delivering an ever improving customer service, with a digital offer for all taxpayers. I am confident they have the capability to do it. And I’m sure that – with your support – they will deliver on those aspirations.