What is Real Time Information (RTI)?
RTI is a new system that’s being introduced by HMRC to improve the operation of Pay as You Earn (PAYE). PAYE information will be collected more regularly, easily and efficiently when employers submit their regular payroll submissions. It is anticipated that most employers will join RTI from April 2013, and that all employers will be using the service by October 2013.
How does RTI work?
Under the HMRC RTI system, the fundamentals of PAYE will remain the same. The use of PAYE deduction codes for the calculation of tax, NICs and when they make deductions, remain unchanged. Employers will still be required to make a PAYE remittance payment to HMRC each tax month or quarter as agreed with HMRC.
However, employers will be required to send data about PAYE, NIC and student loans every time they pay their employees, rather than with their end-of-year tax return. Therefore, end of year returns (P35 and P14) or P38A supplementary return will not be needed as employers will tell HMRC about all payments made during the tax year each time their payroll is run. Neither will the employer need to complete and send form P46/P45 to HMRC (but there will be a requirement to ask the new employee certain questions).
Employers will still be required to provide each employee with a P60 end of year form. Where necessary, Form P11D will be required to report expenses & benefits and Form P11 (b) to pay Class 1A NICs.
To ensure the data held by HMRC and the employer matches, the employer will be required to do the Payroll Alignment submission. There are two types of the submission: Employers Alignment Submission (EAS) and First Payment Submission (FPS). EAS applies to large employers with a payroll of over 250, and it also applies to those with split schemes, which are multiple payrolls run under the same payroll reference. FPS applies to all other payrolls. The data for payroll alignment is submitted at the same time as the first full payment submission. It should include all employees who have been on the payroll since the start of the tax year, including leavers and joiners.
There will be two methods of reporting for RTI: internet through the Government Gateway and Electronic Data Interchange (EDI). In addition, HMRC expects longer-term to work with the banking and software industries to develop a service, to enable employers to send RTI automatically at the same time as electronic payments are made to their employees.
What are the impacts of RTI?
RTI is one of the biggest changes to PAYE since it was introduced in 1944, and will ensure PAYE keeps pace with modern working patterns.
RTI will make the PAYE process easier and simpler for the employer as well as HMRC. For example it will remove the need for the end of year return (P35 and P14) and simplify starting/leaving processes of the employee.
RTI will also make PAYE more accurate for individuals. HMRC will be receiving information every time a payroll payment is made and will be better able to ensure the correct deductions are made. This will mean more employees will pay the right amount of tax and National Insurance in the tax year.
Besides, RTI will support ‘Universal Credits’ (designed to be a responsive system, adjusting credit payments to taxpayers according to income) by providing the Department for Work and Pensions (DWP) with up to date information about claimants’ employment income, enabling them to calculate Universal Credits payments.
For HMRC, there will be fewer individual customer records needing an end of year recalculation to determine what underpayments or overpayments have arisen. Once RTI has bedded in it is likely that HMRC will be able to do more in-year PAYE work.
Are you ready for RTI?
It’s important for you to start preparing now for RTI. Although RTI will be a highly-automated process, with reporting to HMRC embedded into the employer‘s payroll software, you need to think about what RTI means for your organisation, how you run your payroll and your business processes.