Real Time Information (RTI)
The Association of Taxation Technicians (ATT) has just released an update on RTI which reminds its members that this is the biggest change in relation to PAYE since it was introduced way back in the 1940s.
The update provides an insight into the changes to be introduced by RTI and is therefore worth reviewing in more detail:
A widespread lack of awareness among employers about the new PAYE reporting system, Real Time Information (RTI), is causing concern about its implementation.
According to the report of the All-Party Parliamentary Taxation Group, a further concern is that the tight timetable may not allow software developers enough time fully to develop their products.
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. Under RTI, employers and pension providers will tell HMRC about PAYE payments every time they are made, at the time they are made. 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 affects reporting only: PAYE payment arrangements will not change.
RTI will therefore provide up-to-date information about claimants’ employment income so that the Department for Work and Pensions can calculate 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 information about payments, employers will have to provide details of each employee’s normal hours worked the first time they make an FPS. Employers that do not pay any employees in a tax month, or only want to recover statutory payments and certain other sums, will have to send an employer payment summary (EPS). Even employers that pay HMRC quarterly will have to make monthly RTI submissions. RTI will be enforced by penalties, with legislation in the Finance Act 2013.
Most employers will have to move to RTI in April 2013, but all employers will be switched over by October 2013. (If you are an employer, HMRC will advise you of your start date.) 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 micro, small and medium-size employers and most large employers and payroll bureaux to join RTI in
April 2013. PAYE schemes established after November 2012 will be invited to join RTI from the outset if their PAYE software is compatible.
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 as at July 2012 HMRC had not clarified all the specifications.
Employers that use a payroll bureau or bookkeeper will have to work with their providers to ensure any changes needed to their PAYE processes happen in time. 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 forms P11D as at present.
Finally, RTI will enable HMRC to issue PAYE penalty notices for late monthly payments as soon as a penalty is incurred. At present, notices are issued only after the end of the year when several months’ of penalties have accumulated, and it is too late for employers to correct any errors.
It is not unusual for HMRC to defer these initiatives when the going gets tough so we will have to wait and see but nevertheless we believe that all employers should be aware of the new regime and the implications of it.