We’ve recently been discussing RTI with our Payroll Manager customers and what impact they believe it’s going ot have on their business.
Comments range from “really unsure how the HMRC are going to be ready to take in such a potential mass of data each month or week”; “what about data integrity?” to “We don’t know how its going to impact our business”; and what additional administrative tasks will be required?”
What is RTI?
Real Time Information is a new system that is being introduced by the HMRC to fundamentally improve the operation of PAYE (Pay as You Earn) Currently PAYE return process is a manual procedure that happens annually; it is prone to error and inaccuracies – employers only find out at year end if they have deducted the correct amount of tax during the year.
RTI will result in this information being collected regularly when employers submit their payroll submissions.
Why is it changing?
The current PAYE system has been in place since it was introduced in 1944 making it 68 years old; operating unchanged and is the method used by employers to pay income tax and national insurance contributions (NIC).
Employers deduct payments from employees’ pay each week or month and for a large part; the current system works for the majority of employers and employees.
However, it has become prone to error, fraud and inefficiencies making it difficult for the HMRC to identify errors and assist employers and employees’ to resolve problems in a timely manner.
The RTI system will require employers to send data about PAYE, NIC and student loans every time they pay their employees rather than with their end of year tax return.
Why introduce RTI?
Simple. RTI should enable HMRC to respond to errors, improve the accuracy of payroll and reduce the probability of fraud.
Benefits of RTI
The government wants transparency of financial status and RTI will consolidate and automate tax reconciliations for individuals. It should reduce administrative costs of PAYE by phasing out annual employer returns and removing the need to submit P45 or P46 forms.
RTI will prevent identity fraud, reduce errors and overpayments in the current benefits and tax credits system which will ensure that individuals are taxed correctly through PAYE.
Concerns of RTI!
Small businesses will struggle to implement real time reporting the Public Accounts Committee has warned the HMRC; who must or will have to find a way of supporting businesses that do not have electronic payroll systems in place.
Approximately 94% of employees receive earnings electronically but small businesses without electronic payroll systems and self-employed don’t submit monthly data to HMRC. How the HMRC intends to manage these employees is yet to be worked out.
How will it affect you?
Instead of submitting information once a year at Payroll Year End, employers will submit information electronically to HMRC for PAYE, NIC and student loans every time employees are paid.
When will it come into effect?
RTI will be phased in from April 2013 and will be mandatory for all employees from October 2013.
The system is being piloted from April 2012 and the current timetable published by the HMRC is as follows:-
- March 2011 – technical specification to be issued
- Oct 2011 – test system available to solution providers
- April 2012 – pilot customers submitting RTI (complete by Oct 2012)
- April 2012 – Large employers (25o+) to start RTI
- April 2012 – Medium employers (50 to 249) to start RTI
- Aug 2013 – small employers (<49) to start RTI
- Oct 2013 – all employers submitting RTI
What do I need to do?
To get your software right you will need to ensure your payroll provider is compliant so you can submit additional RTI information required along with Bacs payments.
Small companies will have access to the HMRC’s basic PAYE tools which will work with RTI free of charge.
Ensure your data payroll is right ensuring that the payroll details for your employees are fully up to date and in the right format for RTI:-
Name must be your full name and official forename(s) surname; no initials and in the correct order. Date of birth must be given in the format “DD/MM/YY”. National Insurance Number (NINO) must be given as two letters, followed by six digits and end with a letter which will be either A,B,C or D.
With every business in the UK expected to commence migration to RTI between April 2012 and October 2013 it makes sense to prepare your business. Taking control and adopting RTI early will enable you to understand what the impact is likely to be on your business and its payroll practices, ensuring that you continue to pay your employees and HMRC on time.
What do you think of RTI? How do you think its going to affect you? Who will pay for RTI?
Is RTI the Government’s way of getting much needed revenue into the treasury quicker than the current PAYE?
Drop by and leave a comment in the comment box below; we love to hear your opinion!
If all this all sounds like too much hard work or worrisome then contact Digital Print Management for independent and impartial advice on how to outsource your payroll.
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