If you read nothing else, read this…
• Employers will be required to send HMRC information about employees’ pay and deductions before, or when, they run their payroll process, rather than at the end of the tax year.
• Year-end submission of P14s for all staff, a P35 summary and employer declaration, and the P38(A) annual return will no longer be necessary.
• Real-time information will see the starter and leaver process overhauled.
• Employers will continue issuing P60s.
Employers must prepare for a new era in pay-as-you-earn administration, says Nick Martindale
The government’s real-time information (RTI) programme, due to be introduced in April 2013, will be the single biggest change to the pay-as-you-earn (PAYE) system since it was first introduced in 1944.
The concept is simple. Employers will be required to provide employee salary, tax and national insurance (NI) information, along with details of new starters and leavers, to HM Revenue and Customs (HMRC) when, or before, they perform a payroll process, rather than at the end of each tax year.
The move is designed to create a more time- and cost-effective PAYE process for employers by removing the need for end-of-year returns (P35 and P14); to provide a more accurate set-up for staff by reducing the bills and repayments sent after the end of the tax year; and to enable HMRC to manage debt collection better. It also aims to reduce tax credit errors and fraud, and support payment of the Department for Work and Pensions’ new benefit structure, universal credit, which is due to come into force in October 2013.
Rebecca Mullins, a manager in Deloitte’s consulting practice, welcomes the removal of employers’ arduous end-of-year reporting process. “Instead, an extract file will be submitted to HMRC every time a payment is made to an employee,” she says.
Karen Thomson, associate director of policy, research and strategic visibility at the Chartered Institute of Payroll Professionals (CIPP), welcomes the push for more accurate data. “HMRC admits PAYE works well for the majority of people, particularly those with stable circumstances, but there are some limitations, such as where people have more than one concurrent job or pension, or unpredictable employment patterns,” she says.
“This can mean people may not pay the correct tax during the year, and intervention from HMRC after the end of the tax year is necessary, in some cases, to correct this. Some of these limitations have been demonstrated in the level of overpayments and underpayments over recent years.”
Roger Moore, general manager at Bond TeamSpirit, adds: “If an employer uses the wrong tax code, RTI will give HMRC the opportunity to issue a correct code during the tax year, allowing a correcting payment at the next pay date rather than at year-end. It will also remove some employee tax-related queries, because the information on income and deductions will be more accurate.”
But not everyone is so happy with the changes. Bill Thompson, principal business consultant at NorthgateArinso, says employers will no longer have time to correct errors around details, such as leaving dates. “We think the ambiguous nature of the legislation may introduce unforeseen challenges to the payroll manager,” he says.
“For instance, HMRC expects to be informed of statutory payments and student loan deductions each period, but has introduced validation on the RTI file that precludes the ability to report corrections following accidental overpayments.”
Much of the legwork in preparing for the new regime will fall to payroll software providers rather than employers, says Neilson Watts, payroll expert at Sage UK. “Employers will naturally see some changes to their payroll service provider’s processes, procedures and timescales,” he says. “But, fundamentally, the basics of doing a payroll will stay the same. It is simply the frequency with which employers send information electronically to HMRC that is changing.”
Employers that do not use third-party software will need to update their own systems.
Employers will need to prepare for this different frequency, as well as the system and process changes required to comply with RTI legislation. Thompson says: “Employers must understand three new processes: employer alignment submission, where the employer and HMRC agree who the employees are; full payment submissions, where the employer runs payroll, generates BACS and then submits the full payment submission to HMRC; and employer payment submissions, where it submits details of all recoverable parental leave and sends payment to HMRC that matches its RTI data.”
Data format will also be key. As well as ensuring its database matches employers’ records, there are four key data items HMRC will ask employers to check they have correct and in the right format: NI numbers, employees’ full names, dates of birth and gender.
Employers should sharpen processes and employ best practice to ensure they capture the right data, says John Black, product manager at MidlandHR. “Employers would be wise to plan early to review their data quality and give themselves time to implement more robust processes of data capture.”
The cost and return on investment of RTI is a moot point. HMRC says employers should collectively save about £300 million a year in greater efficiencies, but admits it will know more after its pilot, due to start this month.
However, the CIPP suggests savings are unlikely, warning software providers may pass on extra costs to customers.
What is happening and when
April 2012: Pilot begins with 10 volunteer employers.
Before summer 2012: Government to consult on powers to facilitate provision of required data and a new model for PAYE late payment and late-filing penalties.
May-June 2012: If successful, the pilot scheme will be extended to about 300 volunteer employers.
September 2012: If successful, a further 1,000 employers will join.
November 2012-March 2013: If successful, the pilot will be extended, with a view to having 250,000 employers using RTI by March 2013.
April 2013: All employers that have not moved to RTI will have to do so.
October 2013: All employers required to use RTI.
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