4 December 2012 | Uncategorized
The real time information (RTI) reporting system for payroll will be introduced from April 2013. Under the RTI regulations, Pay-As-You-Earn (PAYE) information must be reported electronically to HMRC before any payment is made. This replaces the current system, in which PAYE information is submitted once a year. RTI represents the most significant change to the PAYE system since it was introduced in 1944.
With real time reporting, it will no longer be a requirement to electronically file an employer’s annual return to HMRC, nor forms P35 and P14. All the information which would be on the P35 will be relayed to HMRC on the payment reports during that year. An individual should still be sent a P60 which contains information that they may need to complete a personal Tax return. Similarly, there will no longer be an obligation to send HMRC P45s and P46s which are used to notify about starters and leavers because information about starters and leavers will be automatically related to HMRC with the next payment file. Unchanged, however is the requirement for employers to provide P45s to leavers and use the P45 provided by a starter to update their payroll records.
Under the new regulations, most employers will have to start using Real Time Information (RTI) from April 2013, although employers with over 5,000 employees will have until October 2013 to be fully compliant. HMRC have indicated that they will notify employers when to start using the new system.
What to report
A Full Payment Submission (FPS) is the name given to the report which is required to be electronically communicated to HMRC on or before a payment is made to an employee. The FPS will include:
Under the existing system of e-filing for employers’ annual returns, the above information is already reported to HMRC, however there are two additional pieces of information to be included on the RTI
The FPS would also indicate the final payment before 5 April, as the year-end returns are no longer reported. Similarly, the leaving date and starting date are indicated on the following FPS, as P45s are no longer separately reported to HMRC. Form P11d for benefits-in-kind are still reported to HMRC under the existing arrangement. Payment dates will remain as 22nd of each month (or each quarter where the employer makes quarterly payments.)
Preparing for payroll alignment
It is a requirement of RTI reporting for PAYE information conveyed by the employer to be aligned with that held with HMRC. Consequently, employers should review the accuracy of all staff information, and summarise hours worked in time for when the first FPS is to be sent to HMRC. The first FPS may include information which would not be included on future FPSs, such as employees who have worked since 5 April of that year, but have since left. For most employers this may not be a practical hurdle, since the initial submissions will probably be shortly after April 2013.
It remains the responsibility of employees to let HMRC know about any relevant change in personal details, such as change of address. HMRC may not automatically accept change of details related by an employer for data protection purposes. Nevertheless, the employer would still be liable to HMRC for any errors in the RTI. In practice, incorrect information on the FPS could lead to it being rejected, and therefore eventually late, and subject to penalties.
It may therefore be prudent to review contracts to oblige employees to notify their employer in addition to HMRC regarding any change in details. It may be appropriate to review and update a new starter checklist, and Nicolson Accountancy have a standard form for employers to use. Name and address details for new employees should be externally checked with an official source, such as a passport. HMRC offer a national insurance verification process.
Implication for director of own company
An FPS would include all payments including those below the lower earnings limit for national insurance. Where no monthly returns have been submitted, HMRC would estimate any PAYE due, and pursue the employer for the outstanding amount, even if there is no tax due. However, as before, there is no requirement to register as an employer if all payments made to employees in the year are below the national insurance limit.
In practice, therefore, it would make sense not to register as an employer, unless a director was in a position to make a monthly FPS with showing no deductions. However, as Nicolson Accountancy can deliver NIL returns for companies, it can still be beneficial to meet the minimum requirements for the basic credit for directors. Voluntary national insurance contributions may be a suitable alternative for directors of one person companies. This is because the social security benefits (including the state pension) would not accrue to a person who is not being paid above the lower earnings limit or is otherwise paying national insurance. For entitlement to the universal credit, a director, in the one-person-company-minimum-salary scenario should notify the Department of Work and Pensions (DWP).
Employers can implement RTI reporting either through payroll software or via a payroll bureau. HMRC have published an approved list of software providers. HMRC also offer their own software, which by their own admission, has key limitations in dealing with many irregularities. The HMRC software does not produce payslips, P60s or P45s, or record any pay deduction which is not related to PAYE. Nicolson Accountancy are fully RTI complaint and can meet all your needs.
As the new RTI system will be heavily reliant on technology, employers should consider reviewing contingency arrangements, such as recourse to a separate payroll bureau. It is possible to send information to HMRC in advance of payday, where for instance computer system downtime is anticipated.
It is still the responsibility of the employer to submit a correct RTI, regardless of whether the service has been outsourced to a payroll bureau.
Most payroll software providers offer tax tables which automatically update, and a service which allows the pay information to be forwarded in real time.
The objective of RTI are to:
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