The cost savings accrued to HMRC from the introduction of online filing of employers' annual returns were £6.415m in 2005-06. These were primarily staff savings of £6.325m, but also included non-staff savings of £0.09m due to reduced printing and postage.
The cumulative cost savings are expected to increase every year up to 2008-09 and will then be maintained beyond that year.
Details of how the £420 million payment for incentives published in the Regulatory Impact Assessment on 24 September 2003 was calculated are shown in the following table.
Cost of incentive (£) Estimated take up profile (Percentage) Estimated costs (£ million) 2004-05 250 10 40 2005-06 250 30 110 2006-07 150 50 110 2007-08 100 60 85 2008-09 75 70 75
Cost of incentive (£)
Estimated take up profile (Percentage)
Estimated costs (£ million)
HMRC based the estimates on the information we had at that time, and that as better information was obtained the estimates were revised upwards and reported to Parliament.
HM Revenue and Customs (then Inland Revenue) undertook extensive consultation with representatives from the payroll software industry during development of employer annual return online filing policy. This included:
regular consultative group meetings
policy specialists’ attendance at the ‘Inland Revenue Electronic Exchange Network’, an external forum at which developer requirements were discussed
policy specialists’ attendance at numerous software developer events between 2002 and 2004
one-to-one consultations with specific software providers.
HMRC acknowledges that the original estimates on Budget day 2002 did not correctly anticipate the high take-up of online filing. Figures were based on the limited information available at that time. The Department is confident that now more data about filing behaviour-particularly take-up trends—is available, it will be able to more accurately estimate payments of the online filing incentive.
Estimates for forecasting incentive payments are based a combination of the following:
Number of employers claiming the incentive
Size of the employer base
Trends of take-up rates of incentive claims.
Difficulties in bedding down the new technology introduced by HMRC in April 2005 to support employers electronically submitting their annual returns for 2004-05 meant 120,000 (13 per cent.) online returns were accepted with errors that would normally have been rejected. These returns need manual work by HMRC staff before they can be correctly processed, and this has continued to delay some data getting to the national insurance recording system.
HMRC endeavoured to get all the 2004-05 data posted through to NIRS prior to the commencement of the deficiency notice exercise on 11 September 2006, but we did not succeed: 4.7 million deficiency notices were issued to customers and although the vast majority of these letters were correct, some contained incorrect information due to the late processing of returns.
When an individual’s 2004-05 national insurance contributions are recorded on their NI account, dependent on the earnings and NI recorded, HMRC will send a letter explaining that 2004-05 is now a qualifying year for benefit purposes.