Real Time Information (RTI

Background

The Current PAYE system was introduced in 1944 and has changed very little since then.   Although payroll is generally run weekly or monthly, the details of payments and deductions made for individual employees are not submitted to HM Revenue & Customs until after the end of the tax year. At that time, a full breakdown of payments and deductions is submitted using the year end forms P35 and P14/P60.

As payroll has become more complex, this method has resulted in:

ª       5 million taxpayers being incorrectly taxed during the year and either receive a bill for additional tax or a tax refund after the year end

ª       1.4 million taxpayers who earn less than £10,000 overpaying tax

ª       Student Loans continuing to be deducted after the Loan has been fully repaid

ª       Individuals with more than one employment overpaying National Insurance Contributions

ª       Individuals with more than one employment over or underpaying tax

 HM Revenue & Customs are introducing Real Time Information (RTI) in an attempt to reduce errors of this nature. Additionally, it will provide information which will support the introduction of the new Universal Credit, the new state benefit system which is due to commence in October 2013. It will also allow HM Revenue & Customs to know how much PAYE and NIC is due from each Employer every month. This will prevent Employers using the PAYE system to assist their cash-flow by not paying the due amount in a month or months, which they have been able to until now, so long as the correct PAYE and NIC is paid by the end of the tax year!

What is RTI?

RTI will come into effect from April 2013. Employers or their payroll agent or bureau will be required to make online payroll submissions for each pay period during the year which will detail payments to and deductions from employees each time they are paid. There will be no need to submit year end P35 information (although P60’s will still be issued to employees).

How will RTI work?

Initially, a one-off Employer Alignment Submission (EAS) will be made. This is only compulsory for large employers (over 250 employees), but is advisable for all employers as it will ensure that the employee information is agreed to that held by HM Revenue & Customs before the first RTI payroll run.

Each time payroll is processed, a Full Payment Submission (FPS) must be sent electronically to HM Revenue & Customs on or before the date employees are actually paid. For weekly paid employees, the FPS will be made weekly, for monthly paid employees the FPS will be made monthly.   (Note: If you process payroll twice in a month (e.g. for permanent staff then separately for casual/sessional/bank staff then a FPS will be made for each time payroll is processed).

 Additionally, a further return may have to be made each month to HM Revenue & Customs which is an Employer Payment Summary (EPS). This will be necessary where:

ª       no employees were paid in the tax month

ª       the employer has received advance funding to cover statutory payments

ª       statutory payments are recoverable (e.g. SSP/SMP/OSPP/ASPP) together with SMP NIC compensation (if applicable)

 

The EPS will need to be submitted before 19th of the month following the payroll month so that HM Revenue & Customs can offset this information against that submitted on the FPS to calculate the amount due for payment.

 

What issues should you be aware of?

  1.  Data Problems:HM Revenue & Customs have identified three main areas where inaccurate records are held:

Wrong/missing/incomplete names

Wrong/missing date of birth

Wrong/missing National Insurance numbers

     It is very important to ensure that all of the above are correct.

2.   Hours normally worked

     This is additional information which must be submitted as part of each FPS. This information will be used to ensure the correct calculation of tax credits.

 

3.   Starters and Leavers

     Form P45 and P46 will no longer be submitted to HM Revenue & Customs. Starter and leaver information will be submitted as part of each FPS. However,

     although not submitted, a P46 should be completed for each new employee without a P45 as this gives information on which tax code toP45 form will be issued

     to staff leaving.


4.  Students

     Students will no longer be able to complete a form P38S which previously allowed them exemption from paying tax if they worked during their holidays.

     Students will need to complete a P46 if they do not have a P45.


5.   Advances to Employees

      It will no longer be permissible to give an employee an advance on their pay. This will be deemed to be a payment and will require a FPS to be made.

 

6.   Loans to Employees

      Loans are permitted as they are not deemed to be payment (they are recoverable from the employee).

 

7.   Error Correction

     If there are errors in payroll calculation which are corrected after the FPS has been sent, a further FPS should not be made as these will be picked up by the

     following period’s FPS. However, it is possible that this would trigger a penalty for filing an “inaccurate return” (see Penalties, below)

 

8.   Penalties

     Specific RTI penalties have not yet been announced. Penalties for filing an inaccurate return will apply. Late payment penalties which are already in place will

     apply. If HM Revenue & Customs follow the penalties currently in force for inaccurate returns for VAT and Self –Assessment, penalties could range from 0% of

     the tax due for a careless inaccuracy which is disclosed completely voluntarily to 100% of the tax due for a deliberate and concealed inaccuracy which is either

     disclosed voluntarily or has been discovered by HM Revenue & Customs.

 

What do you need to do?

 1.Check that the existing staff information is accurate and correct (e.g. full name, address, date of birth, National Insurance Number, gender)

2.Ensure that new employees supply accurate information.

3.If you are submitting your own RTI FPS/EPS, ensure submissions are made by the relevant date (on or before payment is made for FPS, by 19th of following month for EPS)

4.If your payroll is run by us, follow the instructions supplied.

 

 

 


 

 

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