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What is RTI?
Real Time Information (RTI) is the biggest change since PAYE was introduced in 1944 and is a new initiative from HM Revenue & Customs (HMRC) to improve the administration of PAYE and to enhance the operation of the forthcoming Universal Credit Scheme (coming in October 2013).
RTI is the submission of payments and deductions details throughout the year, rather than at the end of the year via your P35.
RTI will begin in April 2013 for those with fewer than 250 employees and October 2013 for those with more October 2013 – But our advise is to start using the system as soon as possible to get to grips with it and make sure you are ready.
The calculation of Income Tax and National Insurance will not be changing, just the administration of PAYE.
What will be changing?
RTI will change the way employers report details of pay, tax, NI, etc to HMRC.
Until now it has been a once-a-year job carried out around April/May following the end of each tax year, following the change over in April 2013, you must report this information to HMRC at each pay (on or before your pay day).
You will no longer need to complete a year end returns (P35/14).
P45/P46 were to be removed all together this has now changed to a ‘leavers statement and rather than submitted when your employees starts, it will be sent to HMRC with your EPS and not separately.
What’s unchanged
- Payslip will still need to be issued to employees each pay day.
- P60s will still need to be issued to employees, each year.
- Payments of PAYE, NIC, CIS to HMRC are still due by 19th/22nd.
- Expenses forms P9, P11d, etc
What will RTI do?
Using RTI, employers and pension providers will tell (HMRC) about tax, National Insurance contributions (NICs) and other deductions when or before the payments are made, instead of waiting until after the end of the tax year.
RTI will:
- make the PAYE process simpler and less burdensome for employers and HMRC for example by removing the need for the end of year return (forms P35 and P14) and simplifying the employee starting and leaving processes
- make PAYE more accurate for individuals, over time reducing the number of bills and repayments sent after the end of the tax year
- enable HMRC to pursue late payments more effectively
- support the payment of Universal Credit
- reduce Tax Credits error and fraud
Employers and pension providers will send this information to HMRC online for payments made to all their employees including those paid below the National Insurance Lower Earnings Limit (LEL).
Source: www.hmrc.gov.uk
Why is HMRC changing the PAYE System
RTI will enable HMRC to improve the way that the PAYE system operates and builds on the work already done with the introduction of the National Insurance and PAYE Service (NPS).
Under the current PAYE system employers tell HMRC what deductions they have made from employees pay after the end of the tax year. Only then are HMRC able to review whether the correct deductions have been made under PAYE.
With RTI, HMRC will be receiving information when, or before payments are made and will be better able to ensure the correct deductions are made from pay. This will mean more employees will pay the right amount of tax and National Insurance in the tax year.
Source: www.hmrc.gov.uk
The important of accurate employee data
Each employer will have to make an employer alignment submission before or at the time of their first RTI filing.
You will send HMRC your employee data and they will check it against the data they hold and update their records to agree with yours.
This can be done once and cannot be amended, so make sure it is correct.
Regular submission of information
Every time you run a payroll under RTI you have to submit a Full Payment Submission (FPS) to HMRC.
FPS is at the heart of the RTI system but your payroll software will submit it for you so in practice, provided you have got your payroll right, submitting the FPS should be very simple.
A typical FPS will include details of the following for each employee for the tax year to date:
- Gross pay
- Tax and NI deducted
- Employer’s NI
- Tax Code
It also includes details of new starters and leavers. P45 and P46 forms remain in use under RTI, but they are not sent to HMRC because the Full Payment Submission will include the starter and leaver details.
In the event that you do not run a payroll for any given month, you will have to submit an Employer Payment Summary (EPS).
This is a reconciliation of payments made including CIS, SSP and SMP and only required where payment cannot be calculated from your FPS, only submit an EPS when no payments is made to HMRC.
How RTI will affect you
RTI is a huge change to a system that affects millions of employers, employees and pensioners in the UK.
Once RTI starts it will become imperative to get your payroll “right first time” and for many employers that will be where the real organisational pain is felt. But if you view RTI as an opportunity to improve payroll administration across the board then you will be fine.
Using the right payroll software will make the operation of RTI straightforward, but preparation is vital – there is a lot of help available now from HMRC to get you started.
RTI doesn’t apply to me!
If your company pays you a salary below the level at which PAYE, tax or national insurance is payable, you might think that RTI won’t affect you, but it will where either the following conditions exist:
- your pay is above the NI lower limit (currently £107 per week, £464 per month or £5,564 per year)
- you’re paid below the NI lower limit, but your fellow directors or employees are paid above it.
In both these cases you must report details of your pay to HMRC using RTI. But your company can only operate RTI if it’s registered for PAYE. If it isn’t you need to act now or you won’t be ready in time.
National Minimum Wage (NMW) scare
A requirement of RTI is that the number of hour’s directors and other employees work must be reported. According to some this will lead to more NMW enquiries. This is probably unlikely. Firstly, you only need to report the number of hours “normally worked”, not actually worked. Secondly, the report is in bands, e.g. 0 to 15.99 hours, 16 to 29.99 hours, 30 or more hours, so HMRC won’t be able to work out the exact rate of pay from this.
Note. Directors who don’t have a contract of employment are exempt from the NMW.
Getting Organised for RTI
You will need to be using RTI-compliant software, there is free payroll software available.
HMRC’s free software, called the Basic PAYE Tools, can be used by companies with nine or fewer employees (including directors). This can be downloaded from HMRC’s website.
You will need yours employer PAYE references:
- Employers PAYE reference number
- Accounts office reference
You will also need a gateway code, to submit your information online via HMRC software or other RTI-compliant software.
You should receive an awareness letter from HMRC shortly, should be February 2013 telling you when you will have to join.
You will then need to check that you have all correct and up to date information for all your staff (Accurate employee information), a full list can be found on HMRC’s website.
But a basic list is below:
- Full Name
- Date of Birth
- National Insurance Number
- Gender
- Full Address (including post code)
- Starting declaration (A: first start since start of year; B: only job (current) or C: Has another job or pension)
- Contracted hours (RTI just require to know if your employee fits into the following bands:
– Up to 15.99 hours
– 16 to 29.99 hours
– 30 hours or more
– Not specified) - Date joined
- Tax code
- National Insurance Code
Correct these asap.
If paying by BACS, you should have a Hash Code, so that HMRC can cross reference the payment with your records.
Collect this information as early as possible and start inputting the information is to your software now to make sure your are ready.
Also consider the timing of your wages/ salary run/payment dates.
RTI process will start from the first payment made to employees after 5 April 2013.
Note Just remember that HMRC will now know how much PAYE, NIC is due, before payment is due, rather than at the end of the year (current system).
Penalties
Errors – Continue to charge penalties under existing rules.
1 default = no penalty
2-3 defaults = 1% of the total amount of default tax due
4-6 defaults = 2% of the total amount of default tax due
7-9 defaults = 3% of the total amount of default tax due
10+ defaults = 4% of the total amount of default tax due
Still outstanding after 6 months = 5% of the total amount of default tax due and a firther 5% after 12 months.
Late notification/submission – won’t apply in first year of RTI (announced in November 2011); instead a fair and practical way for those to be imposed from April 2014.
Late payment – Interest and penalties on late PAYE, Tax & NI payment won’t be affected by RTI. But employers need to be aware that RTI will make it simple for HMRC to check that the payment due are being made on time. Even those a day late can result in a fine, so make sure your payroll staff are aware of this.
More information on penalties can be viewed here: http://search.hmrc.gov.uk/kb5/hmrc/hmrc/results.page?qt=rti
Finial reminders have gone out to employers to ‘act now’ in order to be ready to report PAYE under the new RTI this month (February 2013).
For further information visit:
RTI Homepage: http://www.hmrc.gov.uk/payerti/getting-started/index.htm
News: http://www.hmrc.gov.uk/news/emp-feb2013-letter.htm
FAQ: http://www.hmrc.gov.uk/rti/developerfaqs.htm
Choosing HMRC recognised PAYE software:
http://www.hmrc.gov.uk/softwaredevelopers/paye/rti-software-forms.htm
Top Tips for RTI
- Check your software is ready (if not using software, download HMRC Basic PAYE tool, from the link above).
- Check you are registered to use HMRC Gateway (If filing them yourself)
- Check you employees data (Check it with your employees to make sure it is accurate and up-to date) – basic check list above
- If paying by BACS check you have your Service User Number (If you don’t have one, you don’t need t use one)
- Sent in your year end P14s and P35 for 2012-13 by 19 May 2013