So says the Forum of Private Business as the first companies start to use the system this month. If you’re still not fully prepared here’s what you need to do…
This year, all businesses - starting with the smallest first as of this month - will be have to change the way they report PAYE as part of the – that’s Pay As You Earn. This is called Real Time Information, or RTI for short, and it’s a HMRC effort to bring the UK’s PAYE tax system up to date.
HMRC has already written to all employers about RTI on a number of occasions, so at this point nobody who will be affected should be unfamiliar with the term. The first thing to know is that only businesses which employ staff will be affected – sole traders need not concern themselves with this. RTI becomes mandatory for employers between April and October 2013. This migration period will be phased and HMRC will notify you four to six weeks before you are required to begin making RTI submissions, so some of you will already have received this notification.
PAYE is of course the system that HMRC uses to collect Income Tax and National Insurance contributions (NICs) from employees. You must deduct tax and NICs from employees' pay each pay period and pay your employer's Class 1 NICs if they earn above a certain threshold. RTI just requires a little thought, planning and preparation, so if you’re not fully up to speed on all that encompasses from the employer’s perspective here goes…
Know your submission
There are four types of submission under RTI. The first type is a One-off Submission and will be required by businesses when they join the process. It is called the Employer Alignment Submission (EAS) and it contains all the static data about all of the employees that are on the payroll including those who have left during the current tax year, and their year to date earnings.
The second type of submission is the Full Payment Submission (FPS). This needs to be submitted between the day that the payroll is processed and the day that the money is paid.
The Third type of submission is an Employer Payment Summary (EPS) and only needs to be submitted if there are statutory payments to pay or reclaim, such as NIC compensation on statutory payments, Advance funding obtained from HMRC for tax refunds and statutory payments, CIS deductions suffered or an NIC Holiday.
The Fourth and final submission type is a National Insurance Number Verification (NVR) this is only required if you have a new employee with no NI number. Whilst waiting for this to be returned, use the employee’s date of birth and their gender in the NINO field. So a male employee born on 23 Jan 1980 would have a temporary NI number of 230180 M.
Mistakes can be rectified?
The obvious question is what do I do if I make a mistake? The simple answer is, it depends on when you notice the error. If you notice it whilst you are running the payroll, correct it there and then before you send the FPS and you will be fine. If you have already made the FPS before you notice the mistake, then the corrections will have to go through the next payroll. In the meantime you can adjust the amount the employee receives if for example you have missed off their overtime, but put the payment and then a corresponding deduction for the net amount needs to be put through the payroll next time thus correcting the year to date figures.
Make sure you register online
If you’ve not previously submitted online you will need to register with the Government Gateway and activate the PAYE for Employers Service. To do this, visit www.hmrc.gov.uk, click Register, and follow the on screen instructions. You will need your PAYE reference, and your Payment Reference handy before you start. Once this is completed you should check your e-Submission settings within your software. Sage’s payroll stores these in a file on the system, so they only need to be entered once into the system – set it and forget it!
There are two tabs on the screen and the system won’t let you out unless you have completed both. The first page stores the Gateway User ID, Password, Company Name, Tax District/Reference and optional tick boxes, such as keeping a log of each time you submit, and automatically checking for new messages when you open the menu. Do NOT tick that option as it means the system will be very slow to access because it checks on the Internet every time you click on the option, which can tie up the PC for ages – especially if you clicked on the option by mistake!
The second screen requires your personal details, such as your name and email address, so that the system can email you a confirmation when you submit data.
All staff have to be registered
With RTI all employees on your payroll, including students and occasional staff, need to be registered. For firms with five permanent members of staff and a handful of casual people or students that work from time to time will require a software license for enough employees. For example, Sage Instant Payroll will allow up to ten employees and the difference in price between Instant and the Sage Payroll where the next break for employees is 50 is quite a jump. Check carefully and find out from your software supplier what the options are.
Prepare, prepare, prepare!
Preparation now is time well invested, and if you find you cannot get what you want from your current supplier now is the time to change to a new system and invest in training on it. Also, don’t forget that help will be available but the chances are it will be manic with so many companies having to join the scheme with very little notice.
RTI won’t cost the earth
HMRC obtained a commitment from the banks back at the start of the process that this new submission method would not be charged onto customers. The banks agreed to cover half the cost and the HMRC the other half. Don’t be persuaded to spend lots of money on new banking software, this is not what their agreement with HMRC states. HMRC has already written to all employers about RTI and will follow up with a second letter outlining the steps they need to take to be RTI ready.
Get the right software
There are a number of software suppliers that supply free payroll software for micro businesses, and the ones that are RTI compliant are listed on the HMRC website. If you do not have commercial payroll software you will no longer be able to use the HMRC’s free on-line software from April as the gateway will be too busy with submissions. The free Employers CD will have the basic payroll tools on it, but HMRC recommend that companies use either commercial software or one of the above free items.
P35/P14 no longer required
The P35 and P14 are no longer applicable. Your final FPS and/or EPS will contain the end of year declarations that were previously included on the P35, as well as the final payment figures for each employee that were previously included on P14 forms.
Don’t panic!
Whatever your thoughts on RTI, it is not complicated, and it is not as difficult as it might first sound. There are workable solutions out there and HMRC will be understanding. Genuine mistakes will not be penalised. If you are having difficulty, there is help out there so seek it if needed – starting with a call to HMRC.