Over the years of JMS Accounting operation, we have dealt with many data issues in relation to HMRC. When HMRC get things wrong they cause stress and waste large amounts of time for both our practice and our clients. Clients will often not understand that HMRC are at fault and our practice wastes many man-hours resolving mistakes by HMRC.
It was some comfort to our practice to read this article in the Spectator that highlighted the extensive data problems problems at HMRC. It doesn’t solve the issues, but it helps to understand the issues that our practice has to deal with were not just experienced by us but many businesses.
We acknowledge full copyright of this article by The Spectator whom we applaud for such a comprehensive article…..
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Ten years ago, HMRC unveiled what was billed as ‘the biggest change’ to the tax system since PAYE began in 1944. The taxman mandated employers to report their workers’ pay every time they ran payroll. Introduced to support Universal Credit by providing earnings data in close to real time, it has since been used to support a raft of other public policies too, including Covid furlough. But this change to PAYE Real Time Information (RTI), as HMRC calls it, has been a disaster for households on Universal Credit, taxpayers, public finances and confidence in HMRC and the senior civil service, as the quality of tax data has effectively collapsed.
At the root of the problem is dodgy data on the earnings of the UK’s 30 million employees. Dodgy data that’s used to calculate 30 million people’s taxes, the benefits of 23 million claimants and the tax liabilities of 1.5 million employers. But often the data arrives late, is incorrect or not captured at all. When things go wrong benefits go unpaid, tax receipts are missed and companies accounting for tax liabilities derailed.
The RTI data stream perfectly confirms the first law of computer systems: Garbage in Garbage out. And the scale of the numbers – and the associated problems – are huge. RTI processes more than 600 million records a year.
But HMRC has implemented RTI and made it available to other government departments including the Department for Work and Pensions, without any automated checks to validate its accuracy. So, when garbage data enters the system through human or computer error, its users receive garbage output too. And as long as the problems remain hidden, HMRC continues to declare RTI a success.
Measuring the scale of error within the system has taken time because HMRC has avoided any effort to produce a proper metric for the reliability of what is one of the government’s most important data sources. Any public estimates have been dragged out of HMRC through Freedom of Information requests and MPs’ questions in the Commons. Those responses point to an overall error rate of between five and eight per cent, working out to at least 2.5 million incorrect records making it through the system every month.
The system was designed appropriately enough. It had tools to support targeted interventions to ensure employers were reporting their staff’s earnings accurately. But these automated interventions, backed by penalties for inaccurate or late returns and late payment of PAYE, were abandoned after just one outing in March 2014, as problems started to appear as soon as they were turned on. Ruth Owen, head of personal tax at HMRC, acknowledged: ‘We haven’t been able to target them [400,000 automated compliance messages to employers] as sharply as we hoped and they went to people who had complied’. Quite.
By pausing its planned compliance regime and ignoring the underlying issues, predictably things got worse. The Spectator has been told of FTSE100 companies who have experienced HMRC’s systems misstating their PAYE liabilities by millions of pounds – creating accounting liabilities and potentially cash flow issues. But HMRC continued to report success to the Treasury. David Gauke, the treasury minister with responsibility for HMRC, requested a ‘Post Implementation Review’ three years after RTI went live, which HMRC sat on.
Problems came to a head in August 2016, when Working Tax Credit benefits suddenly stopped without warning for thousands of claimants. MPs’ surgeries were inundated by desperate constituents. A mother of six was forced into debt after her husband had left her and the DWP accused her of lying. Another single mother was accused by benefit administrators of being married to a dead 74-year-old. Another was told she had no choice but to ask social services to take her kids because she could no longer feed them. They’d all had their tax credits stopped without warning. Wrongly.
This would become known as the Concentrix scandal – which can now be revealed to have been caused by RTI data’s application to Working Tax Credit. This legacy benefit, and precursor to Universal Credit, provided top-up payments to low-income households. Unusually, it was administered and paid by HMRC rather than DWP. If a worker’s earnings increased then their WTC payment would continue to be paid and the overpayment repaid the following year, because its design relied on an annual assessment. For this reason, HMRC assessed it as having a high level of fraud and error, requiring significant HMRC resource. To add to its fraud-fighting capacity, HMRC contracted a Belfast-based company in 2014, Concentrix – which was fully integrated with HMRC’s systems. HMRC continued to work its own fraud and error caseload in parallel.
The contract required Concentrix to find new data techniques to identify fraud and error in WTC claims, which it performed superbly. This all ran without incident for over two years. Concentrix was highly regarded by HMRC. That is until Concentrix’s boss Philip Cassidy learned, as he was boarding a plane, with only 15-minutes warning, of HMRC’s imminent press release blaming it for the thousands of WTC claim suspensions from 16 August.
The permanent secretary at the top of HMRC at the time was Jon Thompson. As Parliament began to demand answers, Thompson was unequivocal through three different select committee inquiries. The blame lay squarely with Concentrix, he said. The supplier had failed to employ enough call centre staff to respond to WTC claimants responding to their suspended claims. ‘It seems to me that this has been a clear failure of customer services’, Thompson told the Work and Pensions Committee on 13 October. A fortnight later he was more emphatic, telling the Treasury Select Committee: ‘Clearly this is a failure of basic customer services.’
What was different about 2016 was HMRC’s decision to use RTI to automate its fraud and error review of the WTC cases it was itself directing, to suspend the payment of claims where household income was showing in RTI as too high. This change was announced to Parliament and recorded in Hansard. So, all the more staggering that HMRC thought Concentrix’s customer service provision was to blame.
In March that year, six months before Concentrix hit the headlines, Lord O’Neill (then Commercial Secretary to the Treasury) announced in a House of Lords debate that ‘real-time information [would be used] to conduct automated checks of an individual claimant’s monthly income. Should RTI find that a claimant’s entitlement should be reduced by £500 or more, HMRC will send a letter, text message or automated voice message to the claimant, prompting them to make contact with HMRC within 14 days. If they do not, their income will be automatically amended on the system.’ In other words: RTI was to be empowered – through automation – to cut a person’s benefit payments.
The level of duplicated earnings in the RTI data was so great though, HMRC – not Concentrix – wrongly terminated thousands of WTC claims. Leaving hundreds of claimants out of pocket and in a state of despair. As the volume of desperate ‘customer’ calls HMRC directed to Concentrix call centres brutally revealed to HMRC’s leadership, the quality of RTI earnings data was so poor as to be effectively unusable, for automated benefit decisions.
Yet real-time employment earnings continue to be the keystone on which Universal Credit relies. HMRC’s refusal to admit the scale of RTI data quality issues has sustained the fiction of RTI as a policy success. A fiction that persists.
HMRC’s myriad bizarre justifications to explain why benefits had been stopped when claimants began to cry foul – living with unknown dead people, for example – are all supported by the data fields present in RTI returns. So, the mismatched data that caused payments to be suspended could only have been caused by erroneous RTI data. Nothing else.
After the inquiries wound up HMRC doubled down, giving an on-the-record denial to the Financial Times that RTI had ever been part of the problem. Staggering, given not only is there a wall of evidence that RTI data was part of the problem, but because the customer service backlog explanation, offered up by HMRC, falls apart under scrutiny too. Concentrix consistently had to request more cases to process in order to recover their costs and hit commission targets, because unlike HMRC they validated their data first. So poor were the cases HMRC pre-assessed as high risk for Concentrix, the company had to set most aside. Would a company with such a rigorous approach to the data validation have suspended claims first and waited for claimants to respond?
In the end, almost all WTC claims terminated during the Concentrix contract were reinstated following ‘mandatory reconsideration’. The final appeal success rate was between 90 and 95 per cent. So why did Concentrix, an American-owned company, take this lying down? The commercial and legal terms of the contract they had signed in 2014 gave them no option.
As an embedded supplier, Concentrix was not only required by HMRC to help dig them out of their own hole; it would have been in breach of contract if it had not used its reasonable endeavours to eliminate or mitigate the consequences of things going wrong. Including ‘negligent statements’ by HMRC themselves.
The restrictive nature of the contract went further still. With Concentrix staff required to sign the Official Secrets Act – exposing them to the threat of up to two-years imprisonment and unlimited fines. And as payment of their commission-only revenues on agreed savings required them not to breach the contract, the monetary value – together with the coercive control it gave HMRC – evidently outweighed the reputational damage HMRC inflicted on the company.
The Concentrix episode is the most notable example of the scale of HMRC’s failure to deliver effective tax administration of PAYE to a basic level of accuracy. The further, cumulative evidence is overwhelming. From day one, professional bodies, the National Audit Office, insiders, MPs and even the United Nations have spoken out over the problems of poor design and RTI data error. Yet a proper fix to the error-strewn system has never been implemented. Every day, RTI information is used to make decisions about our lives. But the inbuilt error and ‘garbage in, garbage out’ nature of the system has never been addressed. The taxman’s head is firmly in the sand.
The cumulative costs of this failure for the UK in human misery, policy failure, revenue leakage and lost productivity are a confirmation HMRC cannot discharge its most basic function of efficient tax administration.
Yet HMRC’s denials persist. And they’ll persist until those at the top are prepared to accept that urgent reform of the system is needed. Until then, the government will continue to let HMRC use unreliable data affecting the finances of everyone in society from multinational companies to those claiming benefits and barely treading water. Another commitment of the government’s 2019 manifesto, to ‘improve the use of data, data science and evidence in the process of government’, broken?
An HMRC spokesperson said:
It’s an employer’s obligation to ensure they are sharing accurate information with HMRC, and our clear guidance sets out exactly what is required. We regularly issue reminders so employers are fully aware of what data needs to be uploaded through their PAYE system and when.
The large majority of employers do submit what is required and on time, however when errors are discovered we will contact them to ensure their records are updated and corrected accordingly. Employers who do not submit what is required and who fail to engage with HMRC could face further action, including penalties.
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Article copyright “The Spectator” – original source https://www.spectator.co.uk/article/the-taxmans-dodgy-data/