Real Time Information (RTI)

PAYE is changing to "PAYE RTI"

The introduction of PAYE RTI represents a fundamental reform of Pay As You Earn, requiring all UK employers to notify HMRC of their liability to PAYE at the time or before they make payment to their employees.

It represents the largest change to PAYE since its introduction in 1944, where previously employers paid PAYE due to HMRC on account but only declared and reported their PAYE at the year end, with a P35 return.

From April 2013 all employers will be mandated by law into PAYE RTI requiring them to submit their RTI return every time employees are paid as part of payroll arrangements. Pension providers are affected as well as employers.

Why?

The Government is commited to introducting Universal Credit in October 2013.

Universal Credit requires PAYE RTI to support this reform of welfare. PAYE RTI provides employee earnings data to HMRC to allow the Department for Work and Pensions to assess Universal Credit claims with timely and accurate earnings data for employees. RTI directly supports welfare reform and the introduction of Universal Credit has dictated the timescale for HMRC’s introduction of PAYE RTI.

All UK employers (and pension providers) are affected

Payroll software automatically submits statutory PAYE returns to HMRC

Requires RTI compliant payroll software or use of HMRC's Basic PAYE Tools

Penalties apply for failure to submit returns

Penalties issued automatically for ‘late’ submission via Government Gateway

RTI "a one way street" - no parallel operation

Most (smaller) employers mandated into RTI, April 2013

RTI returns need to reconcile with employee payments

BACS users submit an additional file via BACS

Long Term Strategic Channel Choice - BACS

HMRC have previously made it clear their preference for BACS as the strategic method for employers to submit their RTI returns at the same time as they make payment to their employees.

The future BACS strategic RTI reporting channel is that employers can submit their payment instructions and RTI return to HMRC simultaneously in a single BACS file submission because BACS terminates 92% of the working population’s salary credits.

The return is validated by the payment to employees and the payment reconciles to the return, significantly reducing the risk of fraud.

In the context of RTI, BACS or 'direct BACS' means that employers initiate payments to their employees through the BACS network by using a BACS Service User Number which is different from making payments by internet or telephone banking.

HMRC’s ‘Interim Solution’

HMRC decided in July 2011, after representations from payroll software providers, to introduce an Interim Solution in advance of a final decision on the strategic RTI solution.

Under the Interim Solution, employers submit their RTI return for each pay cycle directly from RTI ready payroll software over the internet via the Government Gateway, without having to use BACS.

For employers using BACS, RTI payroll software also generates the employer’s BACS payment file. This BACS payment file is linked to the employer’s internet RTI return, submitted to HMRC from the same software, via a unique reference. This reference, known as the ‘hash code’, is present in both outputs. The internet RTI return and BACS payment file, allowing HMRC to reconcile these two separate – but corresponding – outputs received respectively from the Government Gateway and the BACS network.

The Interim Solution therefore has two reporting options for the Employer. An employer themselves, or their accountant or payroll service provider, can comply with their RTI obligations by submitting an internet RTI return only over the Government Gateway, which is mandatory, or for those using BACS, by making an additional BACS submission in addition to the mandatory Internet Return.

HMRC does not currently require employers to use BACS, and employers are under no obligation to do so, although BACS does offer the employer a way of demonstrating their efforts to comply with their RTI reporting obligations, by proving their submission of a BACS payment file with its hash reference.

HMRC have been consulting on penalties for RTI reporting and will confirm the penalty regime in advance of April 2013.

HMRC have already confirmed that penalties will apply for the failure to report RTI returns on time when payroll is run and that these penalty notices will be issued automatically, directly to employers.

Penalties for the failure to report RTI on time set out by HMRC are £100 for each instance of late reporting, for example an employer operating a monthly pay cycle is required to report RTI monthly, but penalty amounts and rules are subject to confirmation.

RTI penalties make it important that employers can demonstrate their efforts to comply with their RTI reporting obligations and they have robust systems in place to support PAYE RTI compliance.

There are a number of important preparatory steps employers need to take in good time before the launch in April 2013.

Data Quality

PAYE RTI requires complete accuracy of all employee data including,

  • Full names, including middle names (abbreviations are no longer allowed)
    NI numbers
    Birth dates
    Gender
    Address
    Number of hours normally worked (less than 16, 16 to less than 30, 30 or more, other - if number of hours varies significantly)
    Regularly paid – regularly paid employees are paid each week or month and will be in almost all pay runs. Those who take more than three months off at a time, such as seasonal workers, should be set as irregular.

It is important this data has been checked and verified.

Software

All UK payroll software has effectively had to become PAYE RTI compliant.

PAYE RTI compliant software will allow employers to submit RTI returns directly over the Government Gateway via an internet connection.

Assess compliance

Employers should review their current payroll procedures and liaise with their payroll service providers or payroll software suppliers and assess their preparedness for PAYE RTI and their ability to demonstrate their compliance with their reporting obligations.

RTI - YOUR QUESTIONS ANSWERED
What does RTI? Mean?

RTI stands for 'Real Time Information'

What is RTI?

RTI is the biggest shake up to payroll since PAYE was introduced in 1994. It is a new filing regime being introduced by HMRC, this will allow HMRC to track employers’ payments, increase the accuracy of PAYE deductions and provide up-to-date information on employees’ earnings.

Is there anything I need to do?

RTI requires certain information about all employees and their payments. If you haven't already started to, you need to collect any missing data for your payroll.

The information we need is:

  • Full names, including middle names (abbreviations are no longer allowed)
    NI numbers
    Birth dates
    Gender
    Address
    Number of hours normally worked (less than 16, 16 to less than 30, 30 or more, other - if number of hours varies significantly)
    Regularly paid – regularly paid employees are paid each week or month and will be in almost all pay runs. Those who take more than three months off at a time, such as seasonal workers, should be set as irregular.

If you’re unsure whether you have what you need, please contact us ASAP to see how Payroll Village can help.

What happens if someone is on long-term sick or maternity leave?

After three months of a regularly paid employee not being paid, HMRC will automatically delete that employee’s details from the database. To prevent this from happening, when an employee receives an SMP1 or SSP1 form, you will need to set them as an irregular employee until they return to work.

I forgot to pay someone - what do I do?

This isn’t a problem as long as there hasn’t been an FPS submitted for this person.

(An FPS is a Full Payment Submission. Every payment made for every employee will require an FPS. So it is just what we call the information is sent to HMRC about payments to employees.)

I need to make an adjustment and pay the employee outside of the pay cycle, is this possible?

Though possible, this is now far more difficult than it used to be. You cannot simply undo the payslip as you could if the adjustment was to be made next time. Are you sure your employee can’t wait for this payment?

Our View

Payroll Village recommends to employers to take the necessary steps now to make sure they are ready for RTI and have the systems in place. Remamber, you have to demonstrate your efforts to comply with the RTI obligations and ensure these efforts are adequately recorded and can be verified.

If you have any questions about RTI affecting your business, then contact our team today and find out how Payroll Village help make RTI simple for your business.