Real Time Information is on its way
Most employers will have to move over to the new system of reporting PAYE by April 2013 – and all employers will be on the new system by October next year. But very many employers are unaware of this deadline and have not started to make preparations.
The new HMRC system is called Real Time Information (RTI), and the low level of employer engagement is causing concern about its implementation.
Under RTI, employers and pension providers will have to tell HMRC about PAYE payments every time they make them, and when they make them. Payroll software will collect the information and send it to HMRC online, generally in the form of a ‘full payment submission’ (FPS), through the Government Gateway or Electronic Data Interchange. Employers will therefore no longer have to complete the P35 end of year return. RTI just affects reporting and the PAYE payments themselves will not change.
The reason for the tight deadline is that RTI is necessary for the introduction of the Universal Credit, which will replace current payments to job seekers and low-income earners.
RTI will therefore provide HMRC with up-to-date information about claimants’ employment income so that the Department for Work and Pensions can calculate benefit payments without claimants having to supply information. RTI is also intended to simplify the operation of PAYE and make it more accurate, reducing the need for recalculations after the end of the year.
As well as providing HMRC with information about payments, the first time employers make an FPS, they will have to detail each employee’s normal hours worked. Employers who do not pay any employees in a particular tax month, or only want to recover statutory payments and certain other sums, will have to send an employer payment summary (EPS). RTI will be enforced by late filing and late payment penalties, and regulations to introduce these will be published later this year.
Most employers will have to move to RTI in April 2013, but all employers will be switched over by October 2013. Ten employers took part in HMRC’s April 2012 pilot scheme, including HMRC itself, and around 1,600 more joined in the following three months. In July, HMRC said the pilot was going well and was on track for all small employers and most large employers and payroll bureaux to join RTI in April 2013.
Employers running their own payroll will have to update their software to allow RTI reporting. The Business Application Software Developers Association has said that the industry is trying to meet the timetable, but HMRC had not clarified all the specifications as at July 2012. The smallest employers – those with nine or fewer employees – can use HMRC’s free Basic PAYE Tools software, which will support RTI.
Although employers will no longer have to make end of year PAYE returns, they will still have to give employees a form P60 and report expenses and benefits in kind on form P11D as at present.
Finally, RTI will enable HMRC to issue PAYE penalty notices for late monthly payments as soon as employers incur a penalty. This may be good news for employers. At present, HMRC issues notices only after the end of the year when several months’ of penalties have accumulated and it is therefore too late for employers to correct any errors.