Coming Soon - Real Time Information

Using Real Time Information (RTI), employers and pension providers will tell HMRC about tax, National Insurance contributions and other deductions when or before payments are made, instead of waiting until after the end of the tax year.  The changes have significant implications for employers.

According to HMRC, RTI will:

  • Make the PAYE process simpler and less burdensome for employers and HMRC; for example by removing the need for the end of year return (P35 and P14) and simplifying the employee starting and leaving processes
  • Make PAYE more accurate for individuals, over time reducing the number of bills and repayments sent after the end of the tax year
  • Enable HMRC to pursue late payments more effectively
  • Support the payment of Universal Credits
  • Reduce Tax Credits error and fraud

HMRC plans to roll RTI out from 6 April 2013 depending on the size of business. Key dates are:

  • April to June 2012 – HMRC running pilot
  • July to October 2012 – pilot due to be extended
  • November 2012 to March 2013 – HMRC will add around 250,000 employers
  • April to October 2013 – mandatory migration

Software providers and payroll agents are already on the case; however there will be some things employers need to do to ensure data is properly cleansed.  Incredibly, HMRC have 824 employees categorised ‘Unknown’, and a further 507 called ‘A.N. Other’!

Implications for employers

RTI will only work if employers have good reliable data.  Inaccuracies could result in employees having incorrect tax information or even triggering HMRC compliance work.  It is therefore prudent for every employer to check the following records:

  • Employee Name – preferably against HMRC documentation – always enter the full name and don’t use nicknames
  • Employee Date of Birth – must be in format DD/MM/YYYY
  • National Insurance Number – don’t make it up, if you haven’t got one, you will need to obtain one

Employers should also check that their payroll references, company name and address and tax reference number are correct.

At the start of RTI, submissions will change:

  • Larger employers will complete an employer’s alignment submission (EAS) – it is optional for businesses with less than 250 employees.
  • Full Payment Submissions (FPS) will then be submitted every time a payment is made to an employee – the first one of these will be critical to those employers deciding not to complete an EAS
  • Employer Payment Summary – this reconciles the FPS to the payment – it’s only submitted if there is any change to what HMRC are expecting

As always with major tax changes, the devil is in the detail and detail is particularly important when it comes to making sure you have the right company and employee data.

My advice would be to perform a data cleanse in good time and amend your new starter procedures to ensure you capture and validate the precise information required.

For more information visit http://www.hmrc.gov.uk/rti/employerfaqs.htm

Nigel Gorski is a chartered accountant. As well as running his own accountancy practice, he is a specialist trainer in finance and business planning at Leeds based business training company, The Business Springboard. For more information, visit www.thebusinessspringboard.co.uk