Real Time Information: are you ready?
From April 2013, HM Revenue & Customs (HMRC) is
introducing a new way of reporting PAYE, known as Real Time
Information, or RTI. The new system will see fundamental changes to the
way in which employers and pension providers must report the payments
and deductions they have made under PAYE. This guide provides an
overview of the RTI regime, and how the new requirements may affect
you.
The background to the scheme
Under the Pay as You Earn (PAYE) system, employers deduct an
appropriate amount of income tax and national insurance contributions
(NICs) from employees’ wages, in accordance with PAYE codes, tables and
other instructions and procedures laid down by HMRC. Over the course
of a year, the amounts deducted should be a close match to the actual
tax and NIC liability due.
Employers deduct the tax and NICs, add their own employer’s NICs,
and pay the total to HMRC, net of certain adjustments, every month or
quarter. However, it is not until the end of the tax year, when the
annual return is completed, that the overall liability is reviewed and
calculated.
Under this system, inaccuracies can go undetected for long periods
of time, with the result that individuals can go for extended periods
inadvertently paying the wrong amount of tax.
The aim of the new RTI system is to ensure that the correct
deductions are made from pay, resulting in more individuals paying the
right amount of income tax and NICs throughout the tax year.
The new RTI system
While essential aspects of the system will remain the same (ie. The
use of tax codes, deducting tax and NICs, and calculating pay), RTI
will require employers and pension providers to submit information to
HMRC regarding deductions they have made for PAYE, NICs and student
loans
when or before each payment is made, rather than at the end of the year.
HMRC believes that RTI will make the process simpler and less burdensome for employers, by:
- making it easier to ensure individuals pay the right amount of tax following a change of job
- removing the need to submit year end forms P14 and P35, and
form P38A for casual employees – although you will still need to
provide P45s and P60s to your employees, and to complete forms P11D and
P11D(b) in respect of taxable benefits and allowances
- simplifying the PAYE end of year reconciliation process for employers and HMRC
- removing much of the uncertainty that leads to errors in the tax credits system.
The information on individuals’ employment income will also be used
to support the administration of the new Universal Credit welfare
benefit, which is due to come into force in October 2013.
Timescale for the changes
The new system is being phased in from April 2013, with all micro,
small and medium-sized businesses and most large employers and payroll
bureaux set to begin sending payroll information to HMRC in real time
from this date. Businesses employing more than 5,000 people will
arrange a ‘migration date’ between April and October with HMRC. The
scheme will be mandatory for all employers from October 2013.
HMRC has agreed that any new PAYE schemes set up from November 2012
will be allowed to send payroll information in real time, as will
employers joining HMRC’s RTI trial before March 2013. In addition,
existing employers who in 2012/13 use or switch to software which is
RTI compliant will also be allowed to report using the new system.
Small employers, with nine or fewer employees, can use the free HMRC
Basic PAYE Tools package instead of commercial payroll software.
HMRC will notify employers 4-6 weeks before they must begin using
RTI. However, much of the impetus has been placed on employers, and it
is important that you prepare for the move ahead of time. You may need
to change some of your business systems and procedures to ensure that
your information is correct and that your staff will be paid on time.
Failure to submit PAYE data on time via RTI could also lead to
penalties.
Getting RTI-ready
Check your data
You need to check in advance that your payroll data is accurate and
in an appropriate format for RTI. The information that you submit will
be matched against records held on HMRC’s databases, and any
discrepancies could lead to inaccurate tax calculations or trigger a
compliance check. See our
employee data checklist below for tips on ensuring the accuracy of your employee information.
Update your payroll software
If you currently use payroll software, you will need to update it so
that it is capable of processing and submitting RTI data. If you use a
payroll provider, make sure that they are RTI-ready.
If you do not use payroll software, you will need to take steps to
ensure that you are able to submit data to HMRC electronically by the
deadline.
As mentioned earlier, if you are an employer with nine or fewer
employees you can use either the free HMRC Basic PAYE Tools package or
commercial payroll software, which will allow you to submit the data to
HMRC when you complete the payroll. However, HMRC recommends that
employers with more than nine employees use more appropriate software
available from commercial software providers.
Update your Bacs references
If you pay your employees by direct Bacs, you must include a
cross-reference or ‘hash’ in the submission and Bacs payment
instruction.
If you make payments via a payroll bureau, bookkeeper or agent you
should discuss with them what changes you may need to make to your PAYE
processes.
Employee data checklist
Name: Ensure that individuals’ names are submitted
in full, spelt accurately, and listed in the correct order, so: Alison
Mary Smith, not A Smith, Smith A or Alison M Smith. Avoid using
shortened versions, or covering entries such as ‘unknown’ or
‘A.N.Other’.
DOB: Do not use a default date of birth, and make sure the date is in the correct format (day, month and full year of birth).
NI: Ensure that you submit the correct national
insurance number, which will take the form of two letters, followed by
six numbers, ending with the letter A, B, C or D.
You can verify employee details by checking them carefully against
an official document, such as a passport, birth certificate or full
driving licence, and by making a national insurance number verification
request (see below).
Making an RTI submission
There are several types of submission under the new RTI system, as set out below.
Full Payment Submission (FPS)
An FPS is the main type of submission, and contains details of all
employee payments and deductions, including income tax, NICs and
student loans, together with details of any new employees and those who
have left the business.
An FPS is required each time an employer makes a payment to an
employee, either at or before the time of payment, whether this is
weekly or monthly, and it includes those whose income is below the
lower earnings limit for NICs.
The first FPS should include all employees who have been employed
during the current tax year, including starters and leavers, or those
who have not yet received a payment, together with the hours normally
worked.
Employers can submit a first FPS for each part of their payroll, eg.
One first FPS for weekly pay, one for monthly pay and another for
leavers. Subsequent FPS’ will only contain pay and deduction details
for those employees that are actually being paid on that payday.
When you send your final submission for the tax year, you must
indicate that this is the case and answer the relevant questions and
declarations.
You may also be required to make the following submissions, depending on your individual circumstances:
Employer Alignment Submission (EAS)
This is used to match and align employee records with those held by
HMRC, before you submit further information. You will need to submit an
EAS if you have a large PAYE scheme with over 250 employees, if your
PAYE scheme is split between different payroll providers or you have
two or more payroll systems, or if you are unable to make a single FPS
submission due to bandwidth restrictions.
Employer Payment Summary (EPS)
An EPS can be submitted where no payments are made to any employees
in a pay period. The submission is also used where you need to advise
HMRC of an alteration to your overall PAYE and NIC liability, recover
statutory payments, etc.
If you want a deduction to apply to a specific tax month, the EPS must be received by the 19th of the following month.
National Insurance Number Verification Request
This allows employers to validate an employee’s national insurance number, or to trace a number where it is not known.
Earlier Year Update
This submission is used after 19 April to correct any of the year to
date totals submitted in your final FPS for the previous tax year, and
will only apply to RTI years.
This article is for general guidance only. We can offer
assistance with all your payroll needs, from helping you to maintain
accurate records to managing your payroll function on your behalf.
Please contact Jolliffes 0845 258 1445 or www.jolliffes-accounting.co.uk for further information
