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John M Taylor & Co | Accountants Paisley/Taxation/Vat Returns/Business Start Ups/Sage/Payroll/Bookkeeping

Payroll - Real Time Information

In April 2013 the PAYE system will undergo its biggest shake up since its introduction in 1944. From that date the way you report your employee’s salary and tax details to HMRC will change radically with the introduction of Real Time Information (RTI). This is mandatory for all employers and comes into effect from 6 April 2013.

HMRC are bringing in this change as they believe it will make it easier for payroll to be operated by the employers and therefore make it easier for them to administer. In addition it will lead to a more timeous submission of data to HMRC to allow them to have a current picture of an employee’s income.

Over time, this will then help PAYE deductions to be more accurate for the employee and therefore reduce the overpayments and underpayments of tax. There will also be more frequent updating of the individual employee’s tax code. The longer term plan for RTI is that it will be integrated with the Department for Work and Pensions in time for the introduction of the new Universal Tax Credit (which will replace the current state benefit system).

Under the current PAYE system, although payroll is run weekly or monthly, the details of payments and deductions made to individual employees are not submitted to HMRC until the end of the tax year. The full breakdown of payments and deductions form part of the year end forms P35 and P14 which are sent in on a tax year basis.

Under RTI employers or their agents will be required to make regular payroll submissions for each pay period during the year detailing payments and deductions Income Tax, NICs and other deductions like student loans made from employees each time they are paid. This means an end of year return (forms P35 and P14) will no longer be required and the starter and leaver process is simplified.

Processing Payroll Through RTI
HMRC currently provide a free tool on their website for processing payroll and this will still be available to employers with 9 employees or less, this figure includes any leavers in the tax year. If you have or are likely to have more than 9 employees then you will be required to either purchase a payroll software programme or engage a third party to process the payroll on your behalf. HMRC hold a list of commercial products that they have tested and are compatible with online reporting. Details of these products can be found on the HMRC website.

Whilst the majority of payroll systems are gearing up to ensure that they are able to deal with the new compliance requirements of the RTI system, some payroll software suppliers have stated that they will not be offering an RTI supported payroll software. If you currently use payroll software it is therefore imperative that you contact the software supplier now to ensure that they will be ready for RTI. If they won’t be prepared for RTI you will need to ensure that you switch software supplier prior to next April to ensure that you are ready for the implementation of RTI.

As you are obliged to switch to the new RTI reporting routine there are some important changes which will need to be made to the way you process your payroll. The remainder of this article outlines a summary of the major changes and the points you need to consider as soon as possible.

Data Validation
The first step in the RTI process is that you will need to send employee data to HMRC which they will validate using their own databases. HMRC will advise you when you need to start reporting the payroll information in real time. You will then do so using Full Payment Submissions (FPS).

In particular you need to ensure that the following employee details are accurate:
• Full employee name
• Date of Birth
• National Insurance Number
• Full postal address
• Gender

Three traps to avoid in particular with regard to names:
• Don’t use ‘known’ names for example Bill or Will instead of William, Sue instead of Susan, Bob instead of Robert.
• Don’t use initials in the forename or surname fields.
• Don’t split double-barrelled names over forename and surname fields. So if Jean-Paul is a double-barrelled forename for example, then this all goes   in Forename field. If Smith-Jones is a double-barrelled surname for example, then this all goes in the Surname field.

For the date of birth ensure you use the correct date of birth and do not enter a default or made up one. If you need to verify this do so from documents such as a passport or a driving licence.

You may wish to check the relevant information with your employees.

HMRC will then check this information against their records and you will only be contacted if there appears to be any problems. Following this submission you can then start submitting the payroll information in real time.

As you are obliged to switch to the new RTI reporting routine there are some important changes which will need to be made to the way you process your payroll. The remainder of this article outlines a summary of the major changes and the points you need to consider as soon as possible.

New Employee Details
Under RTI you will not be able to process pay for new employees which fail the HMRC validation checks. Therefore, please ensure the appropriate checks are carried out and the correct employee information is obtained for all new employees after April 2013.

The following information will need to be confirmed from your new employee:
• The employment history of the individual prior to you taking them on.
• Details from the P45 such as their name, national insurance number, leaving date of previous employment, tax code, previous pay and tax to         date and any other deductions such as student loan.
• Select and apply the correct tax code.

The above information will then be sent to HMRC when you make your first payment to the employee by including it on the FPS.

Casual Employees
Under RTI employers operating PAYE will have to tell HMRC about payments of earnings to all employees, even where an employee earns less than the lower earnings limit (LEL), currently £107 a week. This is a change from the current situation where employers do not have to maintain a P11 if someone for example earns £20 a month, being well below the LEL.

Processing Payroll
The payroll submission you make each pay period must be sent to HMRC before the employees have been paid and you report this information by submitting Full Payment Submissions (FPS) and Employer Payment Summaries (EPS). These submissions and other returns and reports are sent electronically by your payroll system to HMRC. Failure to comply is likely to lead to penalties. Therefore, you may wish to introduce an earlier cut-off date for your pay period after which you will be unable to make any changes for that pay period.

Correcting Errors
It is important that any details about the employees that are reported to HMRC are accurate using the FPS. If an error is found it is important to correct this. There are further details of how to correct various errors on HMRC’s website. How to correct these errors will depend on whether the mistake relates to the employee’s personal information or payroll reporting errors.

Payments to HMRC
Please bear in mind that under RTI HMRC will be aware of the amount of PAYE/NI due to be paid on a monthly basis. This means that if you are to avoid any interest charges or penalties, any PAYE/NI liabilities are paid timeously.

HMRC are issuing updated information via their website ( on a regular basis on the new RTI system but the precise details of how the new scheme operates is still not 100% clear. As further information becomes available we will keep you updated on any further announcements. Meanwhile if you would like any further information about RTI, would like to discuss the option of perhaps allowing us to deal with your payroll on your behalf or would like assistance setting up your payroll for RTI compliance then please contact Angela or Mags in our Payroll Bureau on 0141 848 7474 and we will be happy to assist.

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