Following the Treasury's announcement this week, highlighting the significant tax errors made by HM Revenue and Customs (HMRC), Ceridian here issues its advice to those affected and calls into question the effectiveness of the new system and the law surrounding it.
Commenting, Simon Parsons, Director of Payments, Benefits & Compliance Strategies for Ceridian, said: "The error occurred during the process of installing the new electronic systems last year and the loading of tax records going back to 2008 such as benefit in kind information P11D (Expenses and Benefits) and PAYE (Pay As You Earn) values.
Although the system upgrade took place in June 2009, the inaccuracies did not come to light until this week and are a reflection of the historic errors made over many years. Simon Parsons
"Tax on employee benefits, such as cars and health club membership should be reported annually as part of an employee's gross earnings. However this tax is payable in arrears and therefore is not reported until July which is after the end of the tax year. This has resulted in the information not being integrated into the new HRMC database system. What this means in practice is that there is now a backlog of payments to be claimed by HMRC and in many cases individuals are owed a rebate."
Whilst employers are not under any obligation to assist their employees, many employees will see this as a work related issue; therefore, businesses are advised to offer proactive support by helping employees solve or explore tax related problems - perhaps by offering advice and support via the intranet or an open forum.
"It's always best to direct employees to their local Tax Office if they have concerns but it might be worth sending them a copy of their benefits statement so that they know what benefits they have received and offer information about who might be affected."
Despite the historic source of these errors, there are concerns that flaws in the new electronic system could see further miscalculations come to light. Simon continues:
There is a great deal of taxation under the current system and although the new program is electronic, the forms are not interactive and do not allow for relevant miscellaneous information to be communicated to HMRC. Simon Parsons
"But in HMRC's defence, their online form requests the information that the law requests of them. Yet, there is an increased need for flexibility in the exchange of information as very often tax codes applied by employers may be correct under the rules of application, but are, in fact, incorrect with regards to an individual true tax liability. The question lies in whether the law surrounding the collection of tax information should change, in order to simplify the system and mitigate further errors."
With the recent economic uncertainty, hefty repayments could see many people face difficult circumstances and further errors must be avoided at all costs. What is clear is the growing lack of trust in HMRC; a trust they will have to fight hard to win back. Ceridian has been at the forefront of electronic reporting to HMRC for over 10 years, with simplified and automated data exchange with HMRC.
HMRC is ultimately responsible, but individuals also have some responsibility to follow up suspected errors.
For further information, contact your local tax office; contact details can be found at www.hmrc.gov.uk