Businesses of all sizes need to know about Real Time Information (RTI), a project launched by the Government to overhaul the way PAYE works in the UK that started in April and which will be fully rolled out by October.
Pay As You Earn has been with us since 1944 having been originally set up to aid collection of taxes during the Second World War but changes in work patterns, payment patterns and the sheer volume of information handled by the system have left it straining to cope. The system was designed to run on paper. Reconciling all the information by hand used to take months - many weeks even on computers - as there were over a dozen different systems around the country that couldn’t automatically cross check each other.
What’s worse, as computers took over the processing of the information, tiny errors and inconsistencies that a human would have simply ignored or amended became a major stumbling block. Some taxpayers had multiple records.
However, HMRC now have a single computer and they can process year end information in just two or three days. But the system needs information faster and in a more consistent format.
PAYE is a hugely important part of the UK tax system and the business environment. The process of implementing RTI has to be complete by October 2013 and the next PAYE year that businesses open will need to be RTI ready.
The reason for the rush is the overhaul of the benefits system, and the introduction by Department of Work and Pensions (DWP) of the Universal Credit, that need accurate detailed information about the tax and National Insurance position of every person in the country receiving any type of benefit. Universal Credit is due to go live in October 2013, so DWP need the systems feeding information in to them to be up and running by then.
So, what do you need to do about it? Well, that depends on who runs your payroll. If you use an outside specialist or bookkeeper to submit your returns you need to make sure they’re up to speed. Talk to them now about who is going to do what and when.
If you do your own payroll, then you’ll need to take care of things yourself. Software providers have been working closely alongside HMRC to try and work out what needs to change and what can be kept. The P45 is an example - investigating how businesses would operate the new system highlighted the fact that both the departing employee and the new employer still needed all the information held on the current form, even if HMRC didn’t need it on paper anymore.
Perhaps the most important thing you can do is tidy your payroll data. Because the new system is totally computer driven, it will spit out any inconsistent information as being wrong; you shouldn’t be submitting records in the name of AN Other, or A Student anyway. At the very least, you’ll need the NI number, date of birth and full name for each employee.
The system will want to know how many hours each employee has worked in the pay period. Of course this may not be a problem if everyone is on fixed hours, and paid well above NMW, but if you’ve got many part time workers on the payroll you’ll need to look at how you capture that information and get it into the system.
It’s worth bearing in mind that it won’t just be your employees who lose out if their tax and NICs records are wrong. In 2011, HMRC introduced a controversial new set of ‘in year’ penalties for PAYE record keeping failures, and while there’s likely to be some sort of soft landing for issues relating to the RTI system relying on that is a dangerous game to play. The new penalties can quickly run into thousands and you’ll still have to spend the time sorting out your records after spending the cash on the penalty.