Real Time Information, or RTI, is a new system that is being introduced by HMRC to enhance the whole process of Pay as You Earn (PAYE). PAYE information will be collected more frequently and more efficiently when employers submit their regular payroll submissions.
The PAYE system has remained more or less unchanged since it was first introduced in 1944. It is the method used by employees to pay Income Tax and National Insurance Contributions (NIC). Employers deduct payments from employees’ pay weekly, four weekly or monthly.
The reason it has remained unchanged over the last 68 years is that for most employers and employees it works. However it is prone to fraud which can make it difficult for HMRC to spot errors and help employers and employees resolve problems quickly and efficiently.
Under the HMRC RTI system, employers will be required to send data about PAYE, NIC and student loans electronically, every time they pay their employees, rather than with their end-of-year tax return (P35). HMRC hopes that RTI will help them to operate more efficiently and accurately.
Why is HMRC introducing Real Time Information?
The introduction of RTI will enable HMRC to respond more efficiently to errors and will increase the accuracy of PAYE, lowering the need to issue corrections for overpayment or underpayment and reduce the potential for fraud.
What does it mean for your business?
Rather than sending information once a year at Payroll Year End on a P35, employers will be required to submit information electronically to HMRC for PAYE, NIC and student loans etc. every time they pay their employees.
Trials for Real Time Information (RTI) are going to be happening from April 2012, and by October 2013 it’s going to be mandatory (**see footnote) for all businesses to process PAYE data using the new system. You need to ensure that your business keeps up to date and is ready to stick to the upcoming changes in legislation.
At present there is no real need to change over to or upgrade existing payroll software this soon, unless you really want to. Based on the current information it would make sense to do this in April 2013, at the start of the 2013-14 tax year; this way you should be ready to comply with mandatory filing requirements by October 2013.
There is no real guidance giving information on how this will all work next year, but it is reasonable to assume that it will be along the lines of how VAT is now reported online by all registered businesses, which has proved to be quite simple. One main difference though is that VAT has to be reported quarterly, but PAYE will need to be reported monthly or weekly. Using integrated payroll software will most likely help you to report the required information with the click of a few buttons. If you want the convenience of integrated software, but not the expense, then you could benefit from using the HMRC PAYE basic tools.
If all of this seems to turning your payroll admin into an unnecessary burden for you then you could always employ the services of a reputable Payroll Bureau. Some people still use manual payroll stationery and may not want to adopt computerised systems at all; again, letting a Payroll Bureau deal with it for you might be worth the expense. We have a lovely Payroll Bureau here at Balance, by the way :0) with very reasonable costs. You can have your payroll processed by us without having to be a client for our other services.
So, we’ll all be watching what happens in trials over the 2012-13 tax year and advising our clients accordingly. Hopefully it will be all that HMRC say it will be.
** since this article was written this deadline has changed to April 2013.
This article was compiled by Richard Simpson and Deborah Bradley on behalf of The Balance Team.
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