HMRC are not the ones making the PAYE 'errors'

Here we go again. Today the papers are again full of stories alleging errors made by HMRC related to the tax paid through the PAYE system.

It's only 9 months since the last series of stories started along similar lines. Then, as I explained here, it was the first time HMRC had been able to reconcile their figures for some time. They were using a new computer system. Things are settling down and they have now reconciled the figures for 2009/10 - Not that any of the news reports explain this important point.

HMRC can only reconcile information that they have in their records. This includes tax returns and the last ones filed were for the 2009/10 tax year that ended on 5 April 2010. It is quite an achievement for HMRC to have completed their reconciliations within less than 6 months of the filing deadline for those tax returns (31 January 2011). It's never been done that fast before.

Journalists like to suggest that HMRC are incompetent. Sometimes they are. But it's the PAYE tax system that needs to change and HMRC are working on this. With the system as it stands there will ALAWYS be a need for annual reconciliations and there will ALWAYS be some people who have overpaid and some who have underpaid tax through PAYE.

As I have explained previously the PAYE system cannot be relied upon to ensure that the right amount of tax is deducted from earnings and pensions across the year. And HMRC know this. That's why they are keen to introduce 'Real Time Information' (RTI) reporting. It won't solve all the problems with the system but it would reduce the number of reconciliations required each year. It's going to be tested next year with the intention of introducing it in 2014. It would be a mistake to rush it or to add to the burdens of small employers by obliging them to report RTI. As it stands the intention is to only make this compulsory for larger employers.

So we will continue to have PAYE reconciliations each year - but hopefully these will affect fewer numbers of people each year. And yes, some HMRC staff will make some mistakes too. But the main problem is the PAYE system. As one tax official told me recently: It would be fine if taxpayers only ever had one job or pension at a time, only ever changed jobs at midnight on 5 April and never had any taxable benefits in kind. That, I do not think is ever going to happen!