PAYE and Real Time Information – what you need to know
The PAYE reporting regime is about to see the most fundamental changes since it was established in 1944. Over the next 18 months all employers operating UK payrolls and those providing pension payroll services will be affected.
The Government are introducing Real Time Information (RTI) which will provide HM Revenue & Customs (HMRC) with more accurate and up to date information about employees.
The main driver behind these changes is to allow the benefits payments system to run more effectively. It has been recognised that both central and local government require more up to date earnings information.
Employers will have to provide HMRC with employees’ exact payments and personal details electronically, on each pay day whether that is weekly, fortnightly, 4 weekly or monthly. This information will allow more accurate calculation of the new Universal Credit to be introduced in October 2013. The Universal Credit will replace the multitude of out of work benefits and in work tax credits currently being paid.
RTI in outline
HMRC have now invested in the National Insurance and PAYE system which replaces the previous system that comprised of 12 unlinked databases plus a National Insurance Recording System.
RTI will involve employers changing their current payroll processes. Instead of year end returns, employers will be required to provide information when they do their regular pay run for employees. Once RTI is bedded in and all employers have switched to the new system there will be no need to submit P14s or a P35. The procedure for employees leaving and starting will also be simplified.
Initially all employers will be able to submit RTI from their software, or via an agent, using an internet channel through the Government Gateway.
Eventually employers would be required by regulation to pay their employees via BACS; the RTI data will form part of the BACS submission.
How do I prepare for RTI?
By April 2013 having correct employee personal details will be essential. Potentially a net payment to an employee could be stopped if an employee cannot be matched with HMRC records.
Data cleansing needs to be done on current employee information including;
Correct national insurance numbers and dates of birth
Correct first names – abbreviated or nicknames will not be recognised.
HMRC will need to be electronically notified of all new employees, even if the employee hasn’t yet provided their P45 from a previous employer or completed a P46.
Software packages should be updated to ensure RTI compliant.
As a result of this new process, HMRC will have accurate, real time information about employees pay and tax. HMRC also believe that the submission of this information through a secure and validated channel linked to the payment being made to the employee would allow much of the existing employer reporting burden to be removed progressively.
Timetable for change
October 2011 Test system available to solution providers
April 2012 Pilot schemes to be rolled out to a selection of employers in certain areas
November 2012 From this date 250,000 employers already signed up to test RTI
Early April 2013 Large employers (250 + employees) to start RTI
Late April 2013 Medium employers (50-250 employees) to start RTI
September 2013 Small employers (less than 49) to start RTI
October 2013 All employers submitting RTI. Introduction of Universal Credit system.
It is important that you start to prepare for these changes so that you have all of the information required for RTI, and that your systems are able to comply with the new regulations. Moore and Smalley’s specialist healthcare team are able to help you with the specific needs of your practice, including issues arising from employment contracts, payroll and auto enrolment.
Payroll Services Manager
This article has been adapted for use in Practice Management magazine