Payroll reporting is changing – operating PAYE in real time
HMRC is introducing a new way of reporting PAYE – called Real Time Information, or RTI. From April 2013, employers will be legally required to report PAYE in real time. This means that information about all PAYE payments needs to be submitted to HMRC online each time a payment is made as part of the payroll process, rather than at the end of the year as they are now. RTI is the most fundamental change to PAYE reporting since its inception in 1944.
HMRC do admit that PAYE works well for the majority of people, particularly those with stable circumstances, but because processes have basically remained unchanged since they were introduced, there are some limitations. For example it is common now for people to have more than one concurrent job or pension, or have unpredictable employment patterns. So with information only going to HMRC once a year they are always playing catch up with these individuals’ tax affairs.
Universal Credit system
One of the areas that has caused concern for employers is the tight implementation timeline for such a big change to the PAYE reporting system. The Department for Work and Pensions (DWP) is overhauling the UK benefits system and is introducing a Universal Credit system which will combine many of the current benefits, tying in with the government’s ‘make work pay’ policy and helping to break the cycle of benefit dependency. In order for the new system to work, the DWP requires the information that RTI will supply about individuals’ income to ensure the correct entitlement to tax credit is given. The DWP is driving the timeline of ‘all on board’ by October 2013 so RTI must be used by all employers by this date to support the introduction of Universal Credits.
Main changes for PAYE under RTI
Employers will be required to send information to HMRC about their employees’ pay and deductions, before or at the same time as they are paid; The year end process of submitting P14s for all employees and a P35 summary and employer declaration will no longer be necessary and neither will the requirement for submission of the P38(A) annual return, and; The starter and leaver process is to be overhauled and under RTI, employers will not have to complete and send a form P46 for new employees to HMRC. The P46(Expat) form also ceases and the future of the P46(Pen) is currently under consideration.
Employers will still have to issue P60s to employees and pension recipients following the end of each tax year. Benefits in kind are not included under RTI so employers will still be required to submit forms P9D, P11D and P11D(b) following the end of each tax year.
Is this the first you have heard about RTI?
Despite a variety of communications from HMRC and other representative bodies to businesses, not everyone is aware of the RTI regulations. So if this is a totally new subject to you and you deal with paying employees and/or reporting PAYE to HMRC then it is important that you consider the following:
If you use payroll software, it will need updating so that it can process and submit RTI data – you may need to discuss this with your software provider
If you do not currently use payroll software, you will need to plan ahead now so that your business will be able to submit data RTI to HMRC electronically when required to do so.
If you pay your employees by direct Bacs you will need to include the hash cross references in your RTI submissions. You should speak to your Bacs Approved Solution Supplier or Bacs Approved Bureau about this.
Once you begin to operate RTI, if you do not submit your PAYE data to HMRC on time you may incur penalties.
We are already prepared for the introduction of RTI, so clients who have engaged us for this work just need to be aware of the change in filing requirements.
If you need any further information regarding this subject, please give us a call.