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Real Time Information Payroll Guide

From October 2013, all employers have been required to submit returns under Real Time Information (RTI) processes.

Mitchell Charlesworth's Director of Payroll Services, Ken Davies, explains how the Real Time Information (RTI) measures work and outlines how these changes have affected employers since their introduction.

What is Real Time Information for Payroll?

Since October 2013, all employers have had to submit under RTI.

Whereas the previous system allowed 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 requires firms to send payroll data to HMRC via the Government Gateway on or before the date each employee is paid.

The payroll data should 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 now have to complete on or before paydays, employers also have to submit online a monthly Employer Payment Submission 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 wished 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) is 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 assists the Department of Work and Pensions (DWP) with the administration of the Government's Universal Credit. 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 hoped to reduce the time taken in processing claims to a matter of minutes with the ultimate objection being 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 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.

Assuming your payroll software is 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 have these payroll changes impact on employers?

Mitchell Charlesworth attended consultations on RTI before its introduction, and naturally there were some concerns of the level of impact.  For example, it appeared that a disproportionate level of responsibility would be placed on employers in a short space of time, and how readily would businesses adapt to RTI? How efficiently would their software cope with the changes? How would 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 are 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 disposed with the requirement for separate processes for starters and Employer Annual Return Forms P35/P14 although Employers still 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.

RTI Penalties

Penalties for non-compliance i.e. for late filing of the final RTI submission of the year (in place of a P35) are set according to the size of payroll:

  • 1-9 employees = £100
  • 10-49 employees = £200
  • 50-249 employees = £300
  • 250 or more employees = £400

Where can employers find out more information?

For further information about RTI please contact a member of our team to the right of this page.