UK construction companies expected to pay £47 million in late filing penalties

A recent article AccountingWeb reveals some rather interesting statistics on the CIS penalties for late monthly returns that UK Construction Companies have racked up since last October:

Rebecca Benneyworth writes:

The number of penalty notices issued for late CIS monthly returns are shown as:

• October 2007: 35,919 (> £3.5M)
• November 2007: 44,921 (> £4.4M)
• December 2007: 37,618 (> £3.7M)

She adds, “So a total of 118,458 notices were issued in a three month period, bringing in fines of at least £11.8 million (as the minimum penalty is £100). Assuming that these three months are representative of a normal quarter, this would bring an annual yield from penalties for the new CIS 300 to over £47 million.”

Source: AccountingWeb / Hansard

Although we don’t know how many of these automatic penalties were issued in error (and hence would be invalidated under an appeal), we do know that the standard fine is £100, and the serious fine as high as £3,000 per subcontractor per month, which suggests a yield from just the monthly return of £47 million per year. Read more

HMRC eFiling, “a bit of a disaster” says BASDA Chairman

“A bit of a disaster” is how the new HM Revenue & Customs (HMRC) Payroll eFiling programme was described, according to Dennis Keeling the outgoing BASDA Chairman, in a recent YouTube video. 

In the video, Dennis Keeling is interviewed by PayPerShop presenting a highly critical analysis of HMRC’s new amendments to Payroll eFiling.

Dennis Keeling, BASDA Chairman (speaking on Payroll eFiling at SoftWorld)

He comments on the new HMRC Payroll eFiling programme calling it, “a bit of a disaster” citing that now the “Government has run out of money” for implementing the Carter 1 recommendations (specifically for end of year filing) falls to the software vendors to ensure that their products are compliant with the Carter “Review of HMRC Online Services” report.

Dennis goes on to say that come next April, all supporting software will need to be rewritten in order to support the Carter 2 (mid year filing) recommendations as well as the older Carter 1 recommendations, since our Government wants to run at least parts of both at the same time.

This means that if you use software to produce your P45/P46 (and you have to file online by law by April 2008 if you have more than than 50 employees) substantial parts of it will need to be rewritten by April 1st 2008 in order to support the new recommendations, but still keep the existing system for filing the payroll year end returns.

But I bet your current payroll software package won’t be ready on April 1st…

“Learning from lessons of the past”
Earlier this year, HM Revenue & Customs introduced a whole new taxation scheme for the Construction Industry, called the Construction Industry Scheme. If you’re a regular reader of my blog, you’ll probably know all about the failings of this scheme by now. If you don’t - please select the “Construction (new CIS)” category and catch up

This scheme was introduced on April 6th with absolutely no live black box testing. In other words, a whole new taxation scheme went live - with supporting software infrastructure and software products from third party software houses - all without adequate testing. The first time monthly returns were tested with real data was the day when a real monthly return was submitted. Nobody knew what might happen if the Gateway servers were innundated with requests (they crashed, of course), or were sent real life data which caused them to congest. Of course nobody knew, because there was absolutely zero live testing. No beta testing. No testing, period.

This lead to a long period of confusion by customers, HMRC with their head in the sand and software developers working all hours to ensure that customers were well supported. Meanwhile, presumably as a way to appease the electorate, HMRC promise not to fine anyone whilst the new software system problems are worked out. It turns out that contractors could still lose their gross payment status if not compliant during this time (such as if a monthly return couldn’t be submitted online in time) - even if it wasn’t their fault.

In short, it was a costly disaster for the industry and the software developers. Presumably this cost was not incurred by HM Revenue & Customs, who refuse to provide adequate testing facilities for the software requirements that they impose. Dear reader, do you think that HMRC’s own basic software offerings are untested like this?

A quick word to HMRC: A simple solution to resolving this mess would be to offer a proper test service for payroll testing, in a copy of the live environment. This would allow all software developers to be confident when releasing software to customers that it has at least been tested before the 1st April.

“When you consider that some very large companies are now going to be forced to file P45/P46 electronically, you’d have expected that [they] would have tested their software before going live.”

“To leave it until the last minute just isn’t the way you should do it”
- Dennis Keeling, BASDA Chairman.

If nothing is done (and I suspect this is the case), come 1st April there may be vast problems which by their nature are unforeseen. Going by last April with new CIS, I would expect to see a good mix of technical failure in vendor software, misunderstandings by customers, HMRC software failings, Government Gateway collapse, and a confusing PR backpedalling by HMRC and who knows what else? Perhaps the air conditioning for the HMRC servers will break like they did this year and all the machines will switch off?

My advice to anyone using Payroll software would be to check their software support license or maintenance agreement. Your software vendor is most probably already acutely aware of the Carter review implications and from past experience will likely schedule a “patch”/”fix” or “update” to their software shortly after 1st April as support tickets start to flood in. Remember, this new eFiling mechanism won’t be tested and there are no plans by HMRC to allow software vendors to test in live either!

If you are not covered by a support or maintenance agreement, you might find that the software you use will not appear to function correctly for online filing from April 1st 2008. In which case, I advise getting the arrangements for software support in place, in time for April 1st. Also make sure you know how to apply any updates from your software vendor. It goes without saying that software from us - is automatically updated with little or no effort from the customer.

Make sure that your software license entitles you to updates and fixes next April.

I’ll give the last word to Dennis, “This could be one of the worst disasters we’ve had in a long time”. And I agree.

A winning letter

It’s been a while since I last updated my blog. There’s many reasons, mostly work related; I’m always busy. I’m not sure if that’s a good thing, it’s been 18 months since my last holiday - a two day break in bath. According to the beeb, I’m not alone. Must be ok then, I keep telling myself!

This month I won the prestigious “Winning letter“ in Payroll World. It was my words, but I didn’t actually send a letter in. Payroll World read my blog for the content, and managed to put together a decent edit of my point. Plus, I win a bottle of Laurent Perrier champagne. When that baby arrives it’ll make for a pleasant start to the weekend (and a change from the usual Tesco special offer wine deals).

I’ve also been quoted in a followup article running in the same edition too. You should head over to the Payroll World Website to read it, but since they only keep content up for a few weeks I have reposted the article in which I am quoted here on my blog:

The winning letter

The followup article

There’s not much else left to add, except for an update relating to HM Revenue & Customs….

They’ve asked me to drop my case.

I have, in the interests of running my own businesses and doing right by my customers, agreed to “ignore” or “overlook” the previous issues. I’ve provided all the information to HM Revenue & Customs, who inform me that they have passed this information onwards and upwards up the chain of beauracy. I’m not an industry campaigner, and I have no grudge against HM Revenue & Customs. However, the government need to learn how to take better care of its customers, just like us private businesses have to take over ours.

The point still stands however

HM Revenue & Customs still use two different methods for online and offline verifications. Admittedly, an entire 10 consecutive days have passed with not a single customer bringing this issue up. Is it fixed or have customers just learnt to work around or ignore the problem?

Either way, I shall be putting my attentions onto working on great software - and according to the wishes of HM Revenue & Customs - ignoring the problems that have gone on to date. We plan to log all future enquiries relating to this problem, and we will judiciously report these to HM Revenue & Customs. The problem is, that investigating these issues takes time. Our customers need to spend resources - people and time - and so do we - a costly exercise - to provide HM Revenue & Customs with this diagnostic information. These costs should be borne by HM Revenue & Customs, not us, and certainly not our customers.

I don’t plan to write much more on this issue and everything has already been said. I had some exciting and interesting articles planned, but haven’t got around to writing them yet.

Let’s hope things get better before October 19th.

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