Donald Reid Group

Payroll Real Time Information

We set out below significant changes to the way payroll information will need to be submitted to HMRC under Real Time Information (RTI). RTI is to be introduced for the majority of employers from April 2013. However please be aware that the guidance on how the system is to be operated is constantly being revised by HMRC so please do get in touch for the most up to date guidance.

PAYE - A bit of history

As you are no doubt aware employers are responsible for reporting details of employees’ pay, expenses and benefits to HMRC. They are also responsible for making the relevant deductions from the payments, broadly income tax, national insurance contributions and student loan deductions.

The current Pay As You Earn (PAYE) system was introduced in 1944 as a result of the growing number of taxpayers which led to the need for a more efficient tax collection system.

Under PAYE although payroll is generally run weekly or monthly, the details of payments and deductions made for individual employees are not submitted to HMRC until after the end of the tax year. At that time a full breakdown of payments and deductions is then submitted using the year end forms P35 and P14. As this detailed breakdown of information relating to each employee’s circumstances is not reported until after the end of the tax year, inaccuracies (which create under or over payments) can take a long time to be spotted and rectified.

RTI – an introduction

RTI is mandatory for all employers and is to be implemented from April 2013; indeed some employers have already started reporting this way.

Under RTI, employers or their agents, will be required to make regular payroll submissions for each pay period during the year detailing payments and deductions made from employees each time they are paid.

Whilst the majority of payroll software providers are gearing up to ensure that they are able to deal with the new compliance requirements of the RTI system, there are some important changes which will need to be made to the timing and the way you process your payroll.

HMRC are keen to get RTI up and running as it will enable them to ascertain details of an employee’s circumstances on a more timely basis. It will also provide details for Universal Credit, the new state benefit system which is due to start being rolled out from October 2013 onwards.

Get ready!

RTI is being phased in for batches of employers but each employer will have to follow the same sequence of events as detailed below.

Data Validation

The first step in the RTI process is that you will need to send employee data to HMRC which they will validate using their own databases.

Therefore, to avoid any discrepancies during the validation procedure you need to ensure that the employee information you currently hold is complete and up to date.

In particular you need to ensure that the following employee details are accurate:

  • full employee name
  • date of birth
  • national insurance number (NINO)
  • full postal address (this is a mandatory field where the NINO is unknown)
  • gender.

HMRC are advising that it may be a good idea to check the relevant information with employees before submitting the information to HMRC.

If you do not have a NINO for an employee then the employee's full postal address will have to be reported to HMRC each time you pay them!

When will RTI start?

The majority of employers will start reporting in real time from April 2013. All employers will be reporting under RTI from October 2013. New employers setting up their payroll scheme from now on will be offered the opportunity to begin operating under RTI from the outset.

Employer Alignment Submission (EAS)

An EAS is compulsory for large employers however it may be advisable for all but the most straightforward of payrolls. This is because the EAS allows an employer to agree employee information with HMRC prior to the first RTI payroll run, rather than waiting for errors to be spotted at the time of payment.

The EAS allows HMRC to validate the employee information held on an employer’s payroll so that any discrepancies can be sorted out in advance.

Full Payment Submission

The first Full Payment Submission (FPS) an employer makes to HMRC will include details of all employees. This would include:

  • employees currently on the payroll
  • employees who left before the current payroll run, (but were employed in 2013/14) including the leaving date shown on their P45
  • employees you are not paying this time, perhaps because they are on maternity leave or an unpaid absence, or because you pay them quarterly or annually.

Any subsequent FPS will only include details for those employees that an employer is paying for that pay period. The information included in the FPS includes not only the pay but details statutory payments and deductions made from the individual.

Payroll processing

The payroll FPS an employer makes each pay period must be sent to HMRC on or before the date employees are paid. Therefore, employers may need to introduce an earlier cut off date for pay periods after which you will be unable to make any changes for that pay period.

Employer Payment Summary

Employers may also have to make a further return to HMRC each month (EPS) to cover the following situations:

  • where no employees were paid in the tax month
  • where the employer has received advance funding to cover statutory payments
  • where statutory payments are recoverable (such as SSP, SMP, OSPP and ASPP) together with the SMP NIC compensation payment
  • where a NIC holiday is being claimed or
  • where CIS deductions are suffered which could be offset (companies only).

HMRC will offset the amounts recoverable against the amount due from the FPS to calculate what should be payable. The EPS needs to be with HMRC by the 19th of the month to be offset against the payment due for the previous tax month.

Payments to HMRC

Please bear in mind that under RTI HMRC will be aware of the amount due on a monthly/quarterly basis. This will be part of the information reported to HMRC through the FPS and EPS.

HMRC will expect to receive the PAYE and NIC deductions less the payments each month or quarter (small employers only).

Some further complications

Wages

Under RTI it will not be possible to put through wages at the year end of the business and assume this has been paid throughout the year, for example to utilise a family member’s national insurance lower earnings limit which gives them a credit for state pension and statutory payment purposes.

Wages should be paid regularly and details provided to HMRC through the RTI system on a timely basis.

Casuals

The HMRC guidance on RTI includes rules which will be difficult for some employers to work within. For those employers who have casual staff the following HMRC guidance will cause difficulties:

‘Under RTI employers operating PAYE will have to tell HMRC about payments of earnings to all employees, even where an employee earns less than the lower earnings limit (LEL), currently £107 a week. This is a change from the current situation where employers do not have to maintain a P11 if someone for example earns £20 a month, being well below the LEL.’

Employers who have casual staff currently let HMRC have details of their pay at the end of the year using a P38A. Unfortunately, this procedure is not available under RTI.

HMRC have now issued further draft regulations and guidance in November 2012 covering issues such as payments made on the day of work (which vary depending on the work done) where it is impractical to report in real time. The draft regulations allow up to an additional seven days for reporting the payment in specified circumstances. However, as these regulations are draft they may be subject to further amendment before becoming final.

The end of the P35 procedures

Under RTI the P35 procedures will no longer be necessary. For most employers therefore the last P35 form which will need to be completed will relate to 2012/13.

How we can help

RTI is a big change to PAYE and will take some time for employers and their agents to get to grips with. If you would like to discuss any aspect of RTI in more detail, please do contact us.

For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.


To arrange a complimentary meeting to discuss your accountancy, tax planning and business advisory needs, please telephone 01628 760 000.

 

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