With about 8 months left to go until what we consider to be the biggest ever change to the PAYE tax system kicks in, we look at how things are progressing with Real Time Information (or RTI for short).

Whilst we fully appreciate that many readers are fairly up to speed with RTI already and therefore probably don't need yet more 'bumph' on the subject, there are many, many more employers who are STILL sticking their heads in the sand about RTI and have done absolutely no preparation for the changes coming in next April.  So hopefully this article does two things - firstly to assure those currently preparing for RTI that they are not missing anything and are on the right lines but secondly to remind the remaining employers that RTI IS going to happen next year and that they really need to "get with the programme" ASAP if they want to avoid some serious issues when RTI goes live.

 

Implementation Update

From the start, one of the biggest issues around RTI has been the relatively short timescale for employers to be moved on to RTI, especially given the enormity of the changes, and HMRC's past failures when other major changes to the tax system have been rushed through.

These concerns were raised publicly a couple of weeks ago by the All-Party Parliamentary Taxation Group in their PAYE at the Crossroads Report which suggested a delay to RTI until April 2015. However, in response, HMRC has declared that RTI is "on track" and will be different from other (failed) implementations on the basis that there are "people at the top working together to meet the challenges of RTI". It is therefore still "full steam ahead" for implementation in 2013, April for the majority and everyone else by the end of September at the latest.

A major part of RTI is the integration with the Tax Credits replacement - Universal Credits. HMRC has confirmed that Universal Credits is still on track to be rolled-out fully in October 2013 and so, in their view, everything ties in nicely if the stated go-live dates remain.

RTI Pilot

The pilot programme (where volunteer employers operate RTI as it is intended) has been going for a few months now and HMRC recently announced that a further 1300 employers will join the pilot by September and then considerably more in the months after that.

Noises from the pilot have, on the whole, been mostly positive although there are some technical and practical issues that are coming to the fore, some of which will cause some employers real pain when RTI goes live if the issues are not properly considered by HMRC - see paragraph below for some examples.

Another concern is the relatively low numbers of employers taking part in the pilot. Are the participants really a good spread of the types of employers that we have in the UK ? If they are not, then some of the technical and practical difficulties with RTI will only come out "in the wash" when RTI is mandatory and by then it will be too late for HMRC's "top people" to help remove these difficulties.

Of course, listening to HMRC, everything in the garden is rosy. But we are too long in the tooth to believe all the hype and we do have real concerns that the pilot is not big enough to test RTI to its limits. Only time will tell !

Technical and practical issues

As predicted, the introduction of RTI may well fix some huge problems around tax codes, late payments, etc but it will also make some other, different, issues for employers to deal with. Some of these issues are being raised by clients as they start to prepare for RTI and others are coming out of the RTI pilot.

We would probably need a book, and a lot of writing, to fully explore all of the issues that some employers will face so the following is just some of the main ones we are aware of that are causing some big concerns at the moment:

Data - one of the biggest challenges by employers within the RTI pilot has been in pulling together the mandatory data that HMRC require on every employee. Sometimes this has taken months to deal with. HMRC has made it clear that the mandatory data has to be ready for when they issue the employer with an "invitation" (there is no choice to decline this !!) to join RTI hence the urgency in employers starting work on this ASAP. in gathering the relevant information and making sure that everything is "clean, i.e. full names, proper NI numbers, no typos, full addresses etc etc etc.

Reporting of information "on or before" payment is made to an employee - this is causing some real headaches and concern as there are many situations where retrospective reporting is virtually impossible to avoid, such as where grossing-up arrangements are in place which happens a lot with nannies and expats for example. This could arguably be a bigger issue for smaller employers in terms of increased admin and especially in relation to director payments as the way in which director's loan accounts and salary/dividend payments are usually worked retrospectively just now won't work under RTI.

Expat employees - a whole multitude of issues are coming to the fore in this area as there are many different arrangements in place for paying expat employees and how and when this is reported to HMRC which doesn't fit in with the current requirements of RTI. The admin alone for an organisation operating in many different countries with numerous pay and payroll arrangements could be absolutely horrendous under RTI.

HMRC to their credit has issued some guidance around RTI for expat employees which goes some way to addressing some of the known issues but we think there is still a long way to go before affected employers can sleep easier at night.

Share based payments - again some real issues are coming out that RTI will bring, particularly around the "on or before" requirement and also the time lags involved in dealing with numerous parties in such schemes and more so when things are done internationally. This is an area where we hope, and expect, HMRC to consider much more fully over the months ahead.

Payroll requirements - employers, software providers and payroll bureaux are all working very hard in getting systems in place to cope with RTI. Various IT technical updates are being issued by HMRC on a regular basis to help with this side of things as well but there is definitely still some hard work ahead for these organisations before go-live time.

Penalty consultation

As we blogged about last month, a consultation is currently ongoing around the penalty regime for non compliance with RTI. The consultation closes on 6 September 2012 and it will probably be a few months before HMRC confirms its findings and what they see as the best way forward for penalty provisions.

Feedback from clients and contacts to date around this latest consultation has been quite mixed and there has been some apathy in even considering how penalties might work as some employers are still grappling with the detail of RTI and how to prepare for it.

The common view, however, and one which we probably share, is that the penalty regime will probably not deviate too much from what we have already around P35s etc in that there will be fixed monthly penalties based on number of employees for late returns and tax-geared penalties for mistakes, linked to the number and seriousness of "crimes" committed by the employer.

 

Conclusion

We have said all along that the concept of RTI makes perfect sense for HMRC, employers and employees as the current PAYE system is no longer fit for purpose.

And although the RTI bullet has to be "bitten" at some point, and that there is often no benefit in delaying change unnecessarily, the tight timescales and the lack of proper understanding by HMRC of some of the real issues that employers will face around the intricacies of unusual payments or pattern of payments to employees, is something to be concerned about and it could all come back to bite HMRC "on the bum" if the next 8 months are not put to best use in making the necessary tweaks to RTI to make it work - properly.

Employers also need to be making best use of the next 8 months or so. There's no point sitting there wondering how things are shaping up, and pondering what/when you need to start preparing. As the old motto says, "fail to prepare, prepare to fail" and that will be so very true in the context of RTI. Get in touch if you still need to start your prepping !!!

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