Probably the biggest ever change to payroll taxation has been the introduction of Real Time Information (RTI) reporting requirements for employee PAYE taxation. Her Majesty’s Revenue and Customs (HMRC) has been blitzing payroll professionals since 2011 regarding the reworked reporting regulations, but there are suggestions that some businesses have yet to implement RTI, despite the implementation deadline having passed some months ago.
What is RTI?
In the past, businesses have had declare employee PAYE contributions to HMRC on an annual basis. Under RTI, this information must now be forwarded to the tax man every time an employee is paid, hence the “real time” tag.
Businesses were given until the 6th April 2013 to make the changes required to extract and forward RTI information. Unless expressly informed by HMRC, all employers must complete RTI reports with each payroll run.
All the most popular accounting packages have been updated to add Full Payment Submission (FPS) functionality, which creates the data extract demanded by HMRC. Inside the FPS report will be details of:
- The amount paid to each employee.
- Details of Income Tax deductions and National Insurance Contributions (NICs).
- Start dates for new staff and leaving dates for ex-staff.
Most companies who pay annual maintenance fees for their accounts software should have had the necessary patches applied to their computer systems to enable FPS extracts well before the April deadline.
On the plus side, the shift to RTI has helped to reduce the paperwork associated with payroll slightly. Because HMRC is fully appraised of PAYE data, certain forms are now redundant (specifically P14, P35, P46, CA6855 and P38(S)). The data previously communicated by these forms is now transferred automatically from your payroll system as part of the FPS.
Current application rates
Because of the complexities involved in switching to RTI, HMRC was forced to extend implementation deadlines twice since announcing the new measures. But despite evidence that suggests there is still a significant number of non-compliant organisations, the April 6th deadline remains set in stone.
Smaller firms (those with fewer than 50 employees) have won a small concession from HMRC, which has agreed to accepting RTI data once a month, rather than with each payroll run.
According to the last RTI adoption figures released by HMRC, around 17% of companies had not yet begun the transition. However, these figures are already more than a year old, and when combined with the extended implementation deadline, suggest that the non-compliance rate will be much lower now.
Penalties for non-compliance
HMRC is currently taking a ‘soft landing’ approach to dealing with non-compliance, by first writing to businesses that have not yet submitted any kind of RTI data. “Penalty warning letters” are being sent to businesses from 19th July to emphasise the importance of RTI implementation and FPS data submission. An HMRC spokesperson explained:
“No one should be unnecessarily worried by receipt of one of these letters, these are penalty warning letters and the purpose is to remind employers that they should submit their return and pay HMRC in full as soon as possible”.
The phased approach to compliance will see businesses escape late filing payments so long as the appropriate returns and complete payments are received during the 2013-2014 tax year.
It really is time to get Real Time
Despite the soft landing approach by HMRC, businesses that have yet to implement RTI need to act sooner rather than later. Registering for RTI requires sending an export from your accounts system to help synchronise HMRC’s records with your own. You will also need to upgrade your accounts system to add the relevant RTI functionality for each payroll run.
This preparatory work could be complex and involved, depending on your current payroll set-up and the effort required to bring the system up to the required standard. However, the costs of failing to do so could be substantial, presenting a significant financial threat to non-compliant businesses. Alternatively, you can keep things simple by finding a new payroll system that already has built-in RTI functionality, such as that provided by SnowdropKCS.
For further help and advice, the HMRC: Preparing to Operate PAYE in real time website contains a number of useful resources to get the ball rolling.
Image of man sifting through paperwork from Flickr
