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RTI: How PAYE reporting will soon change

Is this a big deal for employers or not?

Not if you currently use PAYE software, you just need to ensure it can report information to HMRC in real-time. And you will save time by not having to submit an end of year PAYE return. If you currently report manually, you will need to buy RTI-ready software or (if you have nine or fewer employees) you can use the free Basic PAYE Tools available on the HM Revenue & Customs (HMRC) website. Budget permitting, another option might be to outsource your PAYE.

What is RTI?

HMRC is introducing a new way of reporting PAYE. It’s called RTI or Real Time Information.

When will it be introduced?

Ah, well, initially, it was to be from 6 April 2013 for most employers, but just weeks before the deadline HMRC announced a "relaxation of reporting arrangements for small businesses".

HMRC said it recognised that: "Some small employers who pay employees weekly, or more frequently, but only process their payroll monthly, may need longer to adapt to reporting PAYE information in real time. HMRC [has] therefore agreed a relaxation of reporting arrangements for small businesses. 

"Until 5 October 2013, employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month (5th).

In June 2013, HMRC announced that it again be putting back the deadline for businesses with fewer than 50 employees, to April 2014.  

How will it change the way PAYE is reported?

Information about all PAYE payments will have to be submitted to HMRC online as and when (hence in real time) a payment is made as part of your payroll process, rather than at the end of the year, as is the case now. Each time you pay an employee you submit information about: deductions, such as Income Tax and National Insurance contributions (NIC), as well as their start date (and date left, where applicable). Details of payments to all employees must be submitted, including those who earn below the NIC lower earnings limit. Once introduced, employers will no longer have to submit an end of year return (ie forms P35 and P14).

Why are the changes taking place?

According to HMRC, over time, employers will find the new PAYE process leads to more frequent updating of tax codes and fewer underpayments and overpayments. “It also supports the introduction of Universal Credit [the government’s integrated working-age credit], which will replace income-related benefits and credits. It gives the Department for Work and Pensions access to up-to-date information on a claimant’s income from employment.”

What action do employers need to take?

  • If you outsource your payroll (many businesses do, to an accountant), your service provider should be aware of the RTI changes and should have made sure their software is capable of real-time reporting.
  • If you take care of your own payroll and use software, you need to check whether it is able to file your data with HMRC in real time. If in any doubt, consult your software provider. You might be able to upgrade your existing software or you might need to buy more current software.
  • HMRC offers free Basic PAYE Tools, which enable employers with nine employees or fewer to operate their payroll records and report information online, but you cannot use HMRC’s Basic PAYE Tools if you have 10 or more employees.
  • If you currently use a manual method of filing, according to HMRC: “You cannot report payroll information after April 2013 using a form (such as P45, P46, P35, and P14) or [use] HMRC's PAYE Online without payroll software. You need to choose a payroll option and also make sure you are signed up for PAYE Online to use your chosen payroll software.”

Real world

“We’ve been aware of the upcoming changes for some time and the significant impact on small businesses the legislation will bring,” says Sarah Woods from Sage One. “We’ve been working closely in the past few months with HMRC to ensure that our products are RTI-compliant, to save small-business owners the worry of changing the way they operate.

“Our RTI pilot customers have already been submitting PAYE information in real time to HMRC for the past couple of months and they tell us how easy it is.”

Lindsay Melvin, chief executive of the Chartered Institute of Payroll Professionals, has had a typically positive experience. He says: “With help from Sage our experience on the RTI pilot has gone very smoothly and it has given us the confidence to report PAYE data in real time.”

 Where can you find out more information?

 Visit the HMRC website for more details on every aspect of the RTI changes.