From the 6 April 2013, employers will be required to provide Pay-As-You-Earn (PAYE) information to HM Revenue & Customs (HMRC) in real-time. This means that employers will be required to electronically send information to HMRC each and every time they pay their employees, on or before the date on which they pay them, and they must use their payroll software to do this. The reporting of PAYE in real-time, also referred to as PAYE RTI, will be mandatory, so employers must take steps to make it part of their routine payroll process.
Reasons for these changes
Real-time PAYE will help HMRC to ensure that deductions for National Insurance, tax and student loans are accurate, even if employees have several employers or frequently change jobs.
From October 2013, the information collected through real-time PAYE will be used not only by HMRC but by the Department for Work and Pensions (DWP). The DWP will use the information to calculate the amount of Universal Credit owed to people who are either looking for work or are on low incomes.
Real-time PAYE will also simplify certain aspects of a business’ payroll. It will remove the need for a business to send forms to HMRC when they take on new employees or when employees leave, and will effectively do away with Employer Annual Return Forms P35/P14.
Preparing For PAYE Changes
There are three main steps a business must take to prepare for real-time PAYE:
1) Gathering accurate information from employees
When real-time PAYE is run for the very first time, HMRC will perform payroll alignment, which will match the information provided by a business with that already held on the system. The information contained within a business’ payroll system must therefore be checked for accuracy before real-time payroll reporting begins. Particular attention must be paid to the name, date of birth, gender, address and National Insurance number of all the employees on a payroll system.
The implementation of real-time payroll will prevent companies from hiring new starters without collecting their personal details. If information is not available because, for example, a new employee is awaiting a National Insurance number, the field must be left blank and completed as soon as the information has been received.
2) Registering for PAYE Online
Businesses can only report payroll information in real-time if they have registered for PAYE Online. The majority of businesses will already have registered for PAYE Online. However, those who have not must register as soon as possible in order to obtain a user ID and password in a timely manner.
3) Checking payroll software
When a business runs payroll, they will have to use payroll software that provides real-time data to HMRC, regardless of whether they pay their pay staff weekly or monthly and regardless of the number of staff they employ. If a business uses their own payroll software, they must check whether their software is able to send real-time PAYE data. In the event that their software does not have real-time PAYE functionality, they must either seek a software update from their software provider or purchase new software. If a business uses the services of a payroll provider, such as a payroll bureau or an accountant, they must ensure that their payroll provider is aware of HMRC’s PAYE changes. If a business runs payroll but does not use payroll software, they should ideally switch to the use of payroll software as soon as possible.
The reporting of PAYE in real-time must become a simple, additional step whenever a business runs their payroll. Good payroll software will be able to streamline the process of reporting real-time payroll information and will prevent an increase in the workloads of the staff involved in payroll reporting.
Image of HMRC form from Wikimedia Commons