From chatting with my
clients, I have come to realise that whilst everyone in the payroll industry
would have to have been on a different planet over the last year or so not to
have heard of RTI (Real
Time Information), there has been very little communication to Employers in
general regarding this BIGGEST change to PAYE since its introduction in 1944.
So, perhaps an outline may be
in order….
What is Real Time
Information (RTI)?
All Employers currently send
their PAYE information to HMRC at the end of the tax year. This is known as the P35 Employer
Annual Return which is filed by 19th May each year. P60s for current employees are also
generated at this time and distributed by 31st May each year.
Under this system, HMRC have
always had problems keeping data up-to-date as they only receive this
information once a year, at the end of the tax year. This is why employees are not advised of overpaid or
underpaid tax until the following tax year.
Under RTI, this is all due to
change as employers will be sending a return each time they pay their
employees. That’s right…..
Employers will be looking at sending information EVERY pay run they process. So that’s weekly for weekly payrolls, 2
weekly for 2 weekly payroll….. well, you get the picture.
This should mean that, over
time, more people will pay the correct tax for the actual year they are
in. However, this is also
dependent on the quality and accuracy of the information that employers hold
for their staff.
As an aside, RTI also
supports the introduction of Universal Tax Credit when it is introduced in October 2013. Universal Credit will require up-to-date information about
employment and pension income so that the Department for Work and Pensions
(DWP) can adjust claimants’ welfare payments to reflect their circumstances. Good to know that Employers are
assisting the government in this way……
Why fix it if it ain’t
broke……
I think it is generally
agreed that the current tax system is pretty archaic and not much has changed
since its introduction in 1944. So
the system does need to be modernised in the way it works. You only have to remember the uproar
in the media last year when so many
employees were issued with letters regarding underpayments and overpayments of
tax to know that the system is definitely not working as it should.
So is this the best way to
fix the system?
We are currently taking part
in the HMRC pilot scheme testing the new system and so far have submitted an
employee alignment submission.
This process ensures that the employee records that HMRC and the
Employer have match. Two weeks
later, we are still waiting for this to be accepted and confirmed. …
We have been told by HMRC
that RTI will be time saving for the Employer, however, I still have to work
out how doing up to 52 submissions each year (or more if you run multi
frequency payrolls!) will take less time than doing just the 1 at the end of
the tax year. I wait to be
convinced.
How will this affect
Employers?
Employers need to hold
accurate and up to date information on all their employees. HMRC published information recently on
the data sent each year on P14’s (the Revenue copy of an employees’ P60). For example, there were over 500
submissions on employees’ called A.N.Other, and over 2000 employees with the NI Number of AB123456.
RTI or not, it goes without
saying that you should have at least the following information on your
employees:
FULL name (not just initials
or their ‘friendly’ name eg Maggie, Dave)
Date of Birth (the real one,
not 1.1.1901)
National Insurance number (
don’t make one up as the above or base it on the date of birth!)
In readiness for the Universal
Credits, we will also need to record
their contractual hours. DWP will
want to know in three bands how many hours the employee works each week. This would be:
Up to 15.99 hours
16 to 29.99 hours
30 hours or more
Other – for those that work
sporadically
Employees will also need to
be aware that for any change in circumstances eg change of address/change of name,
then they will have to inform HMRC or the employer’s submission may well
reject!! When was the last time you told HMRC that you had moved!? I am still awaiting clarification from
HMRC RTI department on this one ….
