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RTI – What You Need to Know as an Employer

The biggest change in PAYE reporting in almost 70 years will come into effect in April 2013.

At the moment, HMRC are only informed at the end of the tax year of an individual’s earnings and the deductions that were made over the year via their Employer’s end of year return.

From April 2013, Employers will be required to submit a report to HMRC of the payments and deductions made to their Employees before or at the time of making the payment to the Employee.  Real Time Information (RTI) will replace the annual returns that Employers are currently required to submit at the end of the tax year (the P35s and P14s).

What is RTI?
Real Time Information is the new system of reporting PAYE for individuals when or before a payment is made to them by an Employer.  At every pay point (whether weekly, fortnightly, monthly, quarterly etc) a report known as a “Full Payment Submission” (FPS) will be submitted to HMRC detailing each Employee’s pay and deductions.  Where no payments are made in any given pay period, a report known as an “Employer Payment Submission” (EPS) will need to be sent to notify HMRC that no payments have been made and no PAYE is due.

What is the purpose of RTI?
HMRC hopes that the introduction of RTI will to help to:

  • Improve the operation of and modernise PAYE.
  • Support the introduction of the Universal Credit and reduce Tax Credit errors and fraud.
  • Achieve sustainable cost reductions for HMRC and Employers.
  • Close the “tax gap”. There is currently a £32 Billion “tax gap”
  • (the difference between the PAYE owing and that which is collected).
  • Improve the HMRC customer experience for both Employers and Employees.
  • Enable HMRC to deal more effectively with non-compliance.

What does it mean to Employers?
The major change will be reporting to HMRC each time you run your payroll.  This will be in the form of a “Full Payment Submission” (FPS).  This HAS to be done via the internet using compatible payroll software.  If you use payroll software at the moment, you will need to check that it will be RTI compatible from April.

If you currently process your payroll by hand, you will need to implement a computer payroll package (or of course seek the help of a Payroll Bureau such as ourselves to help!).

Another big change will be that where a PAYE scheme is in place you will need to report ALL Employees you currently pay, including those beneath the Lower Earnings Limit (ie those which you currently do not need to hold P11 records for).
Any Employees aged 15 and under do not have to be included in RTI submissions, unless they reach the PAYE threshold (£182 per week or £787 per month for 2013/2014).

PAYE registration rules remain the same in that if you pay all of your Employees below the LEL (for the 2013/2014 tax year this will be £109 per week or £473 per month)  no PAYE scheme is required and therefore there are no RTI requirements.  However, should one Employee be paid above the LEL ALL Employee details must then be submitted to HMRC through RTI.

What will be involved?
The data required by HMRC in the FPS means that you must ensure your payroll records are full and up to date. Each Employee’s records MUST state:

  • Their FULL name in the correct order. No initials, abbreviations or “known as” names and it must be spelt correctly.
  • The date of birth in format date/month/full year (eg. 05/06/1975).
  • National Insurance Number in the correct full format – 2 letters, 6 digits and a final letter (A B C or D).  ALWAYS verify the number from an official document (letter from tax office/ tax credit office etc).  Having the correct NINO for your Employees will be more important than ever!
  • Gender.
  • Full Address including post code.

Before you submit your first RTI submission, you will need to submit an “Employer Alignment Submission” (EAS) to HMRC with all of your payroll record details.  From this they will be able to match their records to yours for each Employee and make sure everything is up to date.

You will need to keep records of the hours your Employees work each week to enable you to inform HMRC.  This information will be used for those Employees claiming benefits and tax credits.  There will be 4 bands for the hours worked:

Up to 15.99 hours
16 – 29.99 hours
Over 30 hours

HMRC will be expecting the correct amount of PAYE to be paid when it is due.  There will be no “paying a bit now and adding some on to next month” or “sorting it all out at the end of the year”.

Penalties for late/incorrect payment will apply, as will they where the Full Payment Submission is late or possibly if it contains errors*.
(*HMRC are yet to confirm the figures and conditions of these penalties.)

What does RTI mean for Employees?
RTI should be of benefit for many Employees in that:

  • Any tax code issues can be identified and corrected promptly.
  • For those Employees receiving benefitsand tax credits (in time, most of which will be transferred to the Universal Credit), having information on their earnings when they are paid to them will help them receive the correct amount of benefit and prevent overpayments.
  • RTI will not affect the way deductions are made from their pay.  They will still receive a P45 should the employment end and a P60 at the end of the tax year.

Can Employers do anything about this now to prepare?

  • Ensure your payroll software will be RTI compliant from April.  If you do not use payroll software and do not outsource your payroll, look for RTI compliant payroll software and become familiar with how to use it before April.  (Alternatively you could look into outsourcing your payroll and take this pressure off!)
  • If you use an Accountant or Payroll Bureau, check that their system will support RTI.
  • Check payroll records are complete and up to date.

Do I have to be involved with RTI?
Afraid so!  Some non-standard PAYE schemes (such as Care and Support Employers and those who are exempt from filing online on religious grounds) do not have to start operating RTI until April 2014.  However most Employers must start submitting RTI from April 2013 and all Employers will need to by October 2013 unless HMRC tell you otherwise.

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© Zest Payroll Solutions                                                                                                                 February 2013