TaxWise: What is Real Time Information?

Peninsula Team

September 23 2012

Q. I have recently heard that HMRC are planning on updating the PAYE system to incorporate ‘Real Time Information’. What is this and what are the implications for my business? A. For the first time since the PAYE system was introduced in 1944 HMRC are making a significant change to the way that payroll information is being reported. The new system of Real Time Information (“RTI”) will be active from April 2013 and it will be mandatory for all employers to use by October 2013. This change is taking place for two main reasons: the old system is not aging well; and HMRC and DWP want to ensure they have the most accurate information available in time for the introduction of the “Universal Credit” benefits system also being introduced in October 2013. The current system was introduced at a time where there was much less mobility and flexibility with working life. Most people had a “job for life” and stayed with one (or two) employers in the same geographical area for their full working life. Nowadays, there is much more fluid employment with people happily moving around the country, and the world, for work. There has also been a rise in multiple employments and self employments and in people undertaking casual labour. The last statistics available showed that one in five new employees will move on in less than a year. The system of year end reporting is not robust enough to ensure that the correct information is being reported and more importantly from HMRCs perspective, being paid over. The consultation document produced by HMRC in 2010 stated that at any one time there was approximately £4billion of PAYE sitting with employers because there were no immediate sanctions if employers did not pay the full amount of PAYE each month as long as the amount was corrected by 19 May each year following the submission of the P14/P35. Employer Position RTI aims to correct this position by requiring employers to report to HMRC the PAYE and NIC deductions being made from an employee’s salary every time that a payment is made. Depending upon your payment schedules, this could be daily, weekly, monthly or in some circumstances yearly. The main effect on the employer will be the requirement to ensure that the information they hold on their employees is up to date, accurate and most importantly complete. RTI will require, as a minimum, the following information to be entered in full: • Full name as known by HMRC – for example Jonathan James Doe (not Jon, Jimmy, ‘shift worker’ or even ‘A N Other’) • Correct date of birth – this may seem silly but HMRC reported they for 2009/10 employers reported that there were 40 people over the age of 200  still in employment! • Correct National Insurance Number – temporary NINOs (AA 12 34 56 B) will no longer be allowed under RTI Your software provider should have already updated their software to cope with the reporting requirements for RTI for little or no additional extra cost, so the main cost to your business will be the time required to ensure that the information you hold is correct and in the format HMRC require. Shirley Harris, the payroll manager for the Chartered Institute of Payroll Practitioners (“CIPP”) was quoted as saying that whilst the migration and use of RTI was straightforward, “preparation, preparation and preparation was the key to [its] success”. As the introduction of the active use of RTI is now only 6-months away, it will be important to ensure that your employee database is complete and correct as once the system is active, the penalty regime is likely to be more stringent for non-compliance and more importantly non-payment than under the current regime. HMRC have confirmed that whilst the penalty position for 2012/13 will remain the same for RTI as for the late submission of the current P14/P35 - with interest still applying for late payment – a new system will be introduced for 2013/14 for late filing of RTI information and further guidance is expected on this shortly. Employee Position The main benefit for the employee is that RTI should ensure that their tax position is updated and corrected through the year leading to a reduction in the amount of PAYE coding errors and adjustments at the year end. It will also provide DWP with current information to ensure that each individual’s entitlement to tax credits is updated on a rolling basis to avoid the need for HMRC to chase overpayments. The information is provided monthly so payment amounts can be altered as required. I hope that this has given you some insight into the new RTI requirements and its impact on your business. However, if you have any queries, please contact our tax specialists on 01455 852 555 for further information.

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