Some employers may be sick of hearing about Real Time Information (RTI for short). Some employers may be ignoring RTI until it actually happens (head-in-the-sand syndrome). And some employers may not even have heard about RTI yet !

Like it or lump it however, RTI is going to happen, and soon, and the more prepared we can all be for such a fundamental change to way in which payroll information is processed and reported to HMRC, the better. After all, employers who fail to embrace RTI once it is up and running properly will (as always with tax compliance) be financially penalised.

If you are in the first camp we mentioned above, you may just want to skip to the paragraph "Employers being ready for RTI" as this is the most crucial part for all employers. For everyone else, the rest of the article is only brief to provide some context to what we are saying near the end. If you do need more of the detail on RTI then get on to HMRC's website and get reading !

RTI - a recap of what it's about

For those of you still unfamiliar with RTI, or who missed our initial article on this in August 2010 Consultation on Improving the Operation of PAYE, HMRC commenced a consultation process about 18 months ago to radically change the way in which the PAYE scheme works. This came about after the screaming headlines blaming HMRC for the PAYE tax code "fiasco" leaving many thousands of employees with an underpayment of tax at year-end.

To many, the way in which information is currently reported and used retrospectively to calculate employee tax codes often a year or so later, and all the admin that goes with it, just does not work, especially now that many employees change jobs on a frequent basis, or have more than one job at any time. So, unusually, most employers and advisors are on board with HMRC's view that things need to change.

Basically RTI is all about changing how the PAYE scheme operates so that employers report pay and staff benefit details to HMRC on a regular basis during the year rather than at year-end so that HMRC can use the most up to date information in assessing each employee's current tax position as and when changes arise to then feed employers with up-to-date tax codes that will (hopefully) ensure that employees are paying the correct amount of tax throughout the year with no nasty surprises at year-end.

Out will go the current end of year returns P35 and some of the "loved" forms such as P45 and P46s and in will come new processes and procedures for information to flow electronically and timely between HMRC and employers.

Another main benefit being cited by HMRC is that admin will be significantly reduced for employers and HMRC and therefore cost savings will be made all round. This may be the case which is to be welcomed but RTI does also fit in nicely with HMRC's drive to improve tax compliance by employers and also the new in-year penalties for late paid PAYE. By submitting real time information, HMRC will be able to see very quickly how much PAYE and NI the employer is due to pay each month whereas at the moment some "skull duggery" can still go undetected if it is all mopped up at year-end.

 

The current status of RTI

HMRC are committed to implementing RTI - they are calling it a "priority Government programme" - and it looks like it will be along the lines suggested within the original proposals set out in the 2010 consultation document.

There is still some tweaking going on though around some of the detail before RTI becomes a reality. And quite rightly so because, as has been proven in the past (remember CIS anyone ??), any major PAYE related changes that are rushed through by HMRC tend to be complete disasters.

Probably the most significant exercise to report is the pilot testing of RTI that will be taking place over the next tax year by some employers and payroll organisations. This testing period will be vitally important to ensure that payroll software can cope with the requirements of RTI, to iron out any practical problems that may arise when it comes to the day to day operation of this totally different scheme and, probably most importantly, to ensure that HMRC's internal systems can cope with the information overload that will undoubtedly come from RTI and that HMRC staff are adequately up to speed with things to help not hinder the whole process.

Other discussions and consideration of practical matters are taking place away from the official pilot testing and HMRC is making announcements on a regular basis on the outcome of these discussions and what RTI is going to look like when it goes live. The latest announcement, for example, was in relation to forms P45 being replaced with a joiner and leaver statement to facilitate RTI. Now, we can certainly see the thinking behind getting rid of forms P45 as the less forms that employers have to complete the better, but HMRC's current suggestion that statements are prepared instead just does not make any sense and the feedback going back to HMRC by many on this is that there should be a rethink around this before RTI gets too far down the road.

We are sure that other practical points will need to be debated as RTI takes shape over the months ahead and hopefully this process will leave us with a workable, modern and robust PAYE scheme for many years to come.

 

Timescales

The current timetable looks like this and we fully expect HMRC to stick to this barring any last minute disasters:

6 April 2012 - the pilot testing commences by selected employers, payroll companies and pension providers

5 April 2013 - the pilot testing exercise comes to a close

6 April 2013 - most employers and pension providers to start using RTI formally

October 2013 - all other employers to be using RTI by this time

 

Employers being ready for RTI

Clearly, such a major change to the PAYE system will have major implications for every single employer in the UK. Whilst we have no doubt that payroll providers and software companies up and down the land will be doing all they can to help their clients transition over to RTI when the time is right, it will be vitally important for employers to make material internal changes over and above any payroll software tweaks so that they can comply with the revised PAYE regulations.

Issues that employers will need to think about over the coming months, and manage as they move over to RTI include:

  • IT systems - ensuring that IT infrastructure and systems can cope with the huge volumes of information that will need to be submitted electronically to HMRC each month
  • Employee information - ensuring that the core data for each and every employee is correct, e.g. names, NI numbers, DOB, etc etc. Mistakes could ultimately lead to some employees paying the wrong amount of tax under RTI with an underpayment arising at year-end just as happens so often just now
  • Joiner and leaver processes - the need to have proper and robust processes when an employee joins or leaves the business will be even more important if there is no universally used form to guide employers on what is required
  • Data management -  timely and accurate data flows between departments and colleagues will be critical to an employer's compliance with RTI. Employers should be focusing on getting rid of paper based procedures and also trying to reduce the level of manual inputting of data to electronic systems in being prepared for RTI
  • Staff awareness and training - no matter how good the systems and processes are internally, if the staff involved do not have a good understanding of what is required and specific issues to be aware of, the whole process can fall down. Key staff will need to be well versed in RTI long before it becomes a reality
  • General payroll & HR processes - RTI will not just impact on the payroll side of things, how a business records and shares information for other purposes, e.g. HR, performance and reward and also staff benefits may need to change to facilitate RTI, or to benefit from the advantages of RTI. Employers should be using the introduction of RTI as a good opportunity to do some "spring cleaning" elsewhere within the business to achieve cost and admin savings

Conclusion

It may be difficult for some to get too excited about something that hasn't been finalised yet and is more than a year away. However, time and time again it is proven that those employers who embrace and prepare for change as far ahead as possible are the ones that manage significant change successfully. The old adage "fail to prepare, prepare to fail" is certainly true when it comes to major changes in relation to payroll or staff payments.

Our message to all employers is if you haven't started thinking about how RTI will impact on your business and how you will manage the whole RTI regime, then please do start thinking soon as RTI will be here before we know it. Use the above bullets as a starter for 10 and do give us a call as we are already helping some employers in improving all of these areas in readiness for RTI next year.

FacebookTwitterLinkedinRSS Feed