Real Time Information Payroll Guide

By October 2013, all employers will have to submit under RTI.  However, HMRC will roll out RTI by issuing employers with directives to commence submitting RTI returns from as early as April 2013.

Mitchell Charlesworth's Director of Payroll Services, Ken Davies, explains how the new Real Time Information (RTI) measures will work and outlines how these changes are likely to affect employers.

You can download our detailed Employers' Guide to Real Time Information Here

What is Real Time Information for Payroll?

By October 2013, all employers will have to submit under RTI.  However, HMRC will roll out RTI by issuing employers with directives to commence submitting RTI returns from as early as April 2013.

The current system allows employers to issue PAYE information to HMRC at the Payroll Year End using electronic versions of the traditional forms P35 and P60. The new RTI system will require firms to send payroll data to HMRC via the Government Gateway on or before the date each employee is paid.

The payroll data will include all employee personal information, details of their pay, tax, national insurance and net pay for that pay date together with additional information such as the number of hours an employee typically works.

In addition to the RTI payroll submissions that employers will have to complete on or before paydays, employers will have to submit online a monthly Employer Payment Submissions to advise HMRC of any reduction of their Paye/National Insurance liability for the month.

The reasoning behind this is that employers may have offsets against statutory payments such as SMP, SSP that would reduce liability or tax suffered/deducted under the Construction Industry Scheme that are otherwise reported outside of RTI.

Therefore, come the 19th or 22nd of the month, HMRC will know exactly how much employers owe them.  

Paying by BACS or paying by CASH?

Originally, HMRC aimed to have all the RTI data submitted via BACS at the time payroll payments were submitted to the bank.  Following consultation in February 2010 this was deferred and an interim method of using the Government Gateway was agreed.  However, the government still wants to verify that payments made to employees match those within the RTI submission and so a referencing system was devised.

For those who pay employees by BACS with a Service User Number (SUN), a unique cross-reference (hash) will be required to accompany each payment made to each employee.  The same unique hash will need to be included in the separate RTI Submission made to HMRC.  Even if payments are made by an alternative method then an RTI submission will still be required but without hashes.

As BACS deal with around 96% of all payments in the UK, the hash will enable HMRC to corroborate the payroll data submitted to HMRC against the payment made to the individual.

This corroboration will assist the Department of Work and Pensions (DWP) with the administration of the Government's Universal Credit, due to commence October 2013. By providing the DWP with access to the exact details of what earnings, tax, normal hours etc. each tax paying claimant is in receipt of at any given point, the government hope to reduce the time taken in processing claims to a matter of minutes.  It is hoped that they will be able to prevent the under and over payment of benefits as currently occurs.

HMRC will also have an accurate pay and tax figure for each worker long before a tax return is completed.

HMRC intend during future compliance visits to check whether employers are including hashes when making BACS payments.  Furthermore, it is expected that they will continue to focus on businesses that make payments by cash.

They may also test the value of payroll items reported compared to expected industry equivalents to identify potential black market labour and use that as marker for potential compliance visits.

How can employers prepare for these changes in 2013?

There are four points that employers should consider in the immediate future:

  • Data Cleansing - submit employee data to HMRC before RTI is live so HMRC can correct inaccurate or incomplete data
  • Improve and Maintain Data Quality - Make sure you obtain dates of birth, use full names and include addresses when employees are entered on your payroll
  • Speak to your payroll software supplier or payroll provider - Make sure they can deliver on Real Time Information
  • Banking - Is your BACS facility ready for RTI

Assuming your payroll software will be capable of supporting your needs for RTI and you are confident with processing payment files generated by your payroll software then you will need to keep an eye out for your "On Boarding Date" issued to you by HMRC.

The On Boarding Date will be when you are required to file your first submission under RTI, including data to allow HMRC to align their in year and personal data to yours.

How will these payroll changes impact on employers?

Mitchell Charlesworth has attended consultations on RTI as it has evolved.  There is a lot of merit in what is trying to be achieved by HMRC but there appears to be a disproportionate level of responsibility being placed on employers in a short space of time.

For instance; how readily will businesses adapt to RTI?  How efficiently will their software cope with the changes? How will mistakes be corrected? What if you have a "split" payroll? What if there are multiple pay points in a payment period?

Some of these changes will be challenging for employers and they may need a helping hand in being shown how to submit under RTI or import a payment file including hashes from their software rather than keying in individual amounts as they are used to.

The advent of RTI will do away with separate processes for starters and Employer Annual Return Forms P35/P14 although Employers will have to notify HMRC that an RTI is the final submission for the year and issue forms P60 to employees.  Leavers will continue to be issued form P45.

HMRC are currently in consultation with employer groups in respect of penalties for non-compliance but it is hope that there will be an initial "softly, softly" approach for non-compliance.  However, it was originally suggested that penalties for late filing the final RTI submission of the year (in place of a P35) will be the same as current penalties for filing a late P35 and that the year after would see penalties applied for each late filing of RTI data during the year.

So take the opportunity to get things in place before HMRC begin penalising employers.  Penalties for non-compliance could run up quite quickly once they start to be issued.

Where can employers find out more information?

Further legislation on penalties will be published by HMRC in due course but we can see that HMRC are very keen to implement these changes, to ensure they collect taxes more regularly and to bring in a benefits systems based on up to date, Real Time Information.

Mitchell Charlesworth urges all firms not to let news of this new legislation slip through the net. Our Payroll service experts are very keen to advise any businesses which may be seeking more detail on the reforms and to assist employers in understanding their new obligations.

Further Information:

For further information about RTI or to discuss how Mitchell Charlesworth can help your company with its Payroll requirements, contact Director Ken Davies by completing a quick enquiry form here, calling on tel: 0151 423 7500 or email: ken.davies@mitchellcharlesworth.co.uk

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