The start of the new tax year will bring with it significant changes to the way PAYE is administered. The big question for employers is – have you been paying attention? Susan Ball, director of the Employers Advisory Group at national tax, audit and advisory firm Crowe Clark Whitehill runs through the changes coming under Real Time Information (RTI) PAYE reporting system.
HMRC wrote to all employers in early 2013 to let them know their RTI migration date. For most this is likely to be the next payment run after 06 April 2013.
What is RTI?
RTI is more than just a change of payroll software. HR, finance and operations managers need to understand what is required as part of their new reporting obligations to ensure that the end-to-end payroll process will meet the rigorous demands of HMRC. Employers should also be aware that payroll information will impact on employees’ benefits paid under the new Universal Credit benefit system. Whilst HMRC offers free basic software to assist with reporting, this is only suitable for organisations with less than nine employees.
What does RTI mean in practice?
In the simplest terms, it means you must:
- have an RTI-compliant payroll process in place by April 2013.
- have accurate data – employers need to check the data they hold on their employees is correct. RTI requires each employee’s full legal name, address, date of birth, gender, NINO, hours worked and passport number (for new employees).
- make submissions to HMRC ‘on or before’ each payment is made to the employee, pensioner or officeholder, be that weekly, monthly etc.
- include employee information – even for temporary and casual workers and employees paid below the tax and National Insurance Lower Earnings Limits.
- assess your systems and processes to ensure that all reportable items are readily accessible for timely reporting. Normal salary should be fine – but what about non-standard payments, such as termination payments or overtime?
Instead of sending the P14 and P35 forms at the end of year, employers will send HMRC:
- a Full Payment Submission (FPS) each time they pay their employees.
- an Employer Payment Summary (EPS) for adjustments to the amount they owe HMRC or for nil returns.
- an Earlier Year Update (EYU) to correct errors or make adjustments to earlier years.
Are there penalties for getting it wrong?
Yes there are. If you have ever had dealings with HMRC then you will know that saying “nobody told me”, is not a reasonable excuse for inaccurate or late returns. However HMRC has advised that it will take a lenient approach to levying penalties in the first year of RTI reporting, 2013/14. Despite this, it’s important that your organisation submits data and payments to HMRC on time, as failure to do so could result in penalties. In future, HMRC will easily be able to tell you how much PAYE you should pay each month, and chase and penalise you if you don’t make a payment on time.
HMRC may also apply penalties for inaccurate RTI submissions. They take a risk-based approach to penalties based on the behaviours that led to the errors, the amount of potential lost revenue and the timing and extent of any disclosure to HMRC. Penalties can be up to 100% of the potential mistake or liability, but in most cases is likely to be 30% or less.
The final Full Payment Submission (equivalent to the old P35) will attract a penalty if late or incorrect.
Top tips when you first get started
Here are some tips to help you avoid problems when you start to report:
- Check your Government Gateway credentials are valid.
- Check your submission to ensure that you have not included invalid characters and you have used the correct Accounts Office Reference number.
- Remember to set the Irregular Payment Pattern (IPP) for employees who you don’t pay regularly – otherwise we will cease record after three months/pay periods.
- Don’t forget to send the Employer Payment Summary by the 19th of the month if you have any adjustments– otherwise HMRC will expect the amount paid to be the same as recorded on the FPS.
- Complete the indicator if you are changing your employee’s payroll ID/works number on an FPS. Otherwise this could result in duplicate employment, incorrect tax codes for individuals and an incorrect charge for the employer.
- Do not send NINO Verification Requests until you have been aligned/ sent in your first FPS.
Relaxation of RTI reporting arrangements for organisations with fewer than 50 employees
HMRC announced on 19 March a relaxation to the RTI reporting requirements for small employers, recognising that some small employers who pay their employees weekly, or more frequently, only process their payroll monthly, may need longer to adapt to the RTI regime, which starts on 06 April 2013.
Until 05 October 2013, employers with fewer than 50 employees may send information to HMRC by the date of their regular payroll run but no later than the end of each tax month. HMRC have advised employers to report their PAYE information by the last payday of the month so that they start to get into the habit of reporting PAYE information ‘on or before’ by October. The deadline for submitting an Employer Payment Summary and for making PAYE payments to HMRC remains the 19th (or 22nd if electronically) of the month.
Susan Ball is director of the Employers Advisory Group at Crowe Clark Whitehill