Britain's employers could face delays and extra costs with submitting crucial end-of-year tax forms, as a leaked Inland Revenue memo indicated that its web systems may not be ready in time.
From next month, large employers will be forced to send end-of-year tax forms electronically. If they use paper or magnetic tape, or miss the 19 May deadline, they face fines of up to £3,000. Compulsion of electronic media follows for medium-sized companies next year.
In an internal memo leaked to the magazine Payroll World, Roy Massingale, head of the e-filing conversion programme at the Inland Revenue, warned staff of the risk of ‘death by a thousand cuts‘.
He warned of the possibility of ‘insufficient time to conclude necessary mitigating actions’ to ensure the end-of-year process runs smoothly.
The leak comes shortly after well publicised problems with the Inland Revenue web service on 31 January, the deadline for self-assessment taxpayers.
Thousands of taxpayers reported spending several hours trying to access the website in order to file their returns. The Revenue apologised.
Payroll World reported that the server was down for at least some of the period 30-31 January.
Similar delays at the tax year-end raises the prospect of payroll teams spending dozens of hours trying to submit end-of-year forms in a process ironically taking far longer than filling in paper forms and putting them in the post. The aim of the reform is to make filing simpler and quicker.
The Revenue memo states that it is highly unlikely that a key feature designed to overcome bottlenecks in processing end-of-year files will be fully tested and ready. The feature is known as the Electronic Routing Interface Component (ERIC).
The memo states: ‘Capgemini [the Revenue’s IT partner] are working very hard to overcome this problem but the delay leads us to conclude that there is significant risk around the key assumption that ERIC would be available and fully tested by 6 April.’
In addition to the compulsion on larger employers, small firms can gain up to £825 in reduced tax bills by converting to electronic media ahead of their own deadline in April/May 2010. This has prompted thousands of small employers to convert, adding to the strain on the Revenue web services.
Enrico Liverani, director of Sunderland-based DCS Payroll, said that the tax break for small businesses was causing such a flood of requests for transfer to electronic filing that the internet system was struggling to cope.
"I think their website is going to melt down in April. I don’t even want to be in the queue at the end of the year."
A spokesman for the Inland Revenue said: "It is routine in delivering any major process change to ensure contingency plans are in place to address any issues should they arise.
"There would be no question of a penalty if shortcomings on the Inland Revenue side prevented an employer submitting a return on time.
"We received nearly 1.6million Self Assessment electronic returns by the deadline of 31st January which is a 48% increase on last year."