2. Further to the written statement yesterday, will the Minister provide an update on HMRC's error regarding Welsh Rates of Income Tax? 311

I issued a written statement yesterday on this matter to ensure that Members were aware of the situation. HMRC identifies Welsh taxpayers and issues tax codes to employers who are responsible for applying their employees' tax codes. Some employers did not apply the correct codes. HMRC is supporting employers to fix this. 

Thank you very much for that response. I'm pleased that we are having an opportunity to ask a few further questions on this. The shame here is that we are in that process now of introducing these historic new taxes—

Just a moment, please. 

No problem at all.

What’s a shame here is that we are seeing the introduction of these historic taxes for the first time, and we need to ensure that that process works as smoothly as possible, because we will need to generate confidence among people that this process is going to work. We saw from the experience in Scotland, which introduced its taxes before us, that problems had arisen with coding, and one of the things that we asked for as the Finance Committee was an assurance that lessons had been learned from that. And the assurance given to us was that those lessons had been learned and that we should be fine. I have some copies here of correspondence between the committee Chair and HMRC. The Chair asked for an assurance and HMRC provided those assurances: 

'We are confident that we have a robust approach'

—and so on. But this kind of thing is perhaps going to undermine people’s confidence, although it’s fair to ask who is to blame: is it the employers for failing to use the correct code, or is it the system, including HMRC, for failing to realise that at the time that the incorrect codes were being used?

So, I wanted to ask for further assurances on particular actions that the Welsh Government will take now, specifically in order to restore the confidence of Welsh taxpayers in this process. And, what further work will the Welsh Government do with HMRC in order to ensure that there is what you might call an early warning system in place where the incorrect codes are used?

Now, as it happens, we're not talking about large financial sums here. I think people may have overpaid or underpaid somewhere between £2 and £10. So, they're not huge amounts of money, but confidence is the issue that we're talking about here, and I would ask for a few words of assurance on the steps taken by the Government from here on in.

Thank you very much for the question and the opportunity to provide some further clarity on this issue. Rhun ap Iorwerth is right: this was a historic thing that we did on 6 April in terms of setting our own tax rates, and it is important that people are able to have full confidence in the system that underpins that. I think it might be helpful if I just set out what happened, to bring us to where we are. 

So, HMRC assigns the correct tax codes to all UK taxpayers through the annual coding exercise. HMRC then issues a P9 form to employers, which confirms the tax codes to assign to each of their employees. It’s then the responsibility of the employer to correctly apply this tax code using whatever software or process that they have adopted. And some payroll providers, in this case, incorrectly applied the S code to Welsh taxpayers. We're awaiting further detail on how this happened, but it does appear that, in some cases, payroll providers haven't updated their software to enable the C code to be applied.

That’s particularly disappointing because HMRC did do extensive work with employers and payroll software providers throughout the preparations for the introduction of Welsh rates of income tax, using their established communication channels and also bespoke presentations, as well as providing technical specifications and test data to ensure that employers and payroll software providers had all the information that they needed. So, there’s no evidence at this stage that HMRC made any errors in allocating the codes to individuals. As I say, it’s disappointing that this error occurred, but beyond that, I think that we can say with some confidence that everything else went smoothly, so I think that certainly is a positive.

In terms of the actions: one of the things that we set out early on, before WRIT came into place, was that there would be the system tests. One of those will be undertaken in June and that's the earliest date that the relevant data will be available for all employers because of the deadlines for employers to submit their payroll information to HMRC. So, once HMRC has performed these checks, we'll be able to identify any inconsistencies and then identify those employers who will need to update their employees' tax position.

Rhun ap Iorwerth is right to say that we're not talking about large financial sums. So, typically, where taxpayers have underpaid tax, or been overpaid, they would have been underpaid by no more than £2 or where they'd overpaid, it would be by no more than £10. And in some cases, even though taxpayers had the incorrect code, they would have paid the correct amount of tax.

All errors will be resolved by HMRC, so there's no activity or no action required on the part of taxpayers, and obviously, I'm very keen to keep colleagues up to date in terms of any further developments and certainly once we have the results of the tests, which will be undertaken in June. 

We know about the problems that exist, which Scotland had when it first had income tax devolved, and if this is the only problem that we have, then I think it should be solved fairly quickly. But when you see a problem occurring like this, there's a nervousness as to whether other problems might have occurred as well. 

We know the bigger problems in Scotland were the failure to allocate Scottish taxpayers to Scotland and to accurately predict the income tax income and receipts that were going to come into Scotland. Is the Minister confident that everyone who should be a Welsh taxpayer, apart from those who have just been identified, are paying the correct Welsh rate of income tax, especially those who do live in Wales, but work in England?

Thank you very much and this is something that we've explored in the Chamber before the introduction of the Welsh rates of income tax, so it's good to come back to it again. Welsh Government and HMRC undertook a large amount of work to ensure that we could identify everyone who is eligible to pay their taxes in Wales. We have no reason to suggest that we feel that there is an issue with that piece of work in terms of identifying those individuals who should be paying Welsh rates of income tax.

Thank you, Minister. The next topical question is from Andrew R.T. Davies.