HMRC has announced that the introduction of automatic penalties for late RTI submissions will be delayed another five months for small employers.

Under the revised timetable announced back in February, automatic penalties were due to start from 6 October. This date will still apply for companies that employ 50 or more people, but smaller companies will get an extra five months until the automated regime starts to bite from 6 March 2015.

The Revenue said it will send electronic messages to all employers shortly to let them know when the penalties will apply to them, based on the number of employees shown in the department’s records.

Ruth Owen, HMRC director-general for personal tax, said that RTI is “working well”.

”Our most recent figures show that over 95% of PAYE schemes making payments to individuals are successfully reporting in real time, and 70% say that it is easy to do.”

HMRC added that where employers believe they have a reasonable excuse for sending a return late, they will be able to appeal using HMRC’s new online appeals process for automated penalties.

It added it would look at other ways to encourage employers to comply with the rules, in addition to financial penalties, in the run up to March 2015.

Chas Roy-Chowdhury, head of tax at ACCA, welcomed the announcement as a “commonsense” solution. With the complex RTI system still bedding in, he said the delay would save businesses from situations where they might have incurred automatic penalties.

Initial comment – John Stokdyk, Editor, AccountingWEB: We have contacted HMRC to clarify some of the questions raised by yesterday’s announcement, which follows a similar penalty delay back in February.

In the official announcement, Ruth Owen said how the transition would be easier for “customers” if it was introduced in stages – but why was this formula not set out eight months ago?

The statement says the extra time will allow HMRC to update its systems and enhance its guidance and customer support, but once again shifts the focus of the policy change from its internal processes to taxpayers. “We know that those who have had most difficulty adjusting to real-time reporting have been small businesses, so this staged approach means they have a little more time to comply with the new arrangements before facing a penalty,” she said.

For most of this year AccountingWEB has been hearing from companies and agents mystified by reconciliation errors and inaccurate figures that go through the RTI system, which has seen many firms harassed by HMRC debt collection agents for tax they do not owe.

Many of these issues were caused by the system creating duplicate records when companies changed their payroll systems (and payroll ID numbers) and other minor administrative changes. Owen told us earlier in the year that HMRC had sorted out 95% of the duplicate record issues by the end of the tax year, but that still left 20,000 people with the wrong codes.

In some instances, employers are fouling up the system by not following the complex requirements set down by HMRC.

But the announcement of yet another change of tack on penalties indicates that HMRC is not confident enough of its data quality to pull the level and set off a torrent of wrong automatic fines. That would set off an even bigger furore than the outcry we saw with penalty warnings in February.