The new Real Time Information regime
HM Revenue & Customs (HMRC) has introduced a new way of reporting PAYE, known as Real Time Information, or RTI. The new system will see fundamental changes to the way in which employers and pension providers must report the payments and deductions they have made under PAYE.
This guide provides an overview of the RTI regime, and how the new requirements affect you.
The aim of the new RTI system is to ensure that the correct deductions are made from pay, resulting in more individuals paying the right amount of income tax and NICs throughout the tax year.
While essential aspects of the PAYE system will remain the same (ie. the use of tax codes, deducting tax and national insurance, and calculating pay), RTI requires employers and pension providers to submit information to HMRC regarding deductions they have made for PAYE, NICs and student loans at the time (or before) each payment is made, rather than at the end of the year.
This removes the need to submit year end forms P14 and P35, and form P38A for casual employees – although you will still need to provide P45s and P60s to your employees, and to complete forms P11D and P11D(b) in respect of taxable benefits and allowances.
It will also be necessary to inform HMRC of individuals’ working hours as well as employment income, as this will be used to support the administration of the new Universal Credit welfare benefit.
Check your data
You need to check in advance that your payroll data is accurate and in an appropriate format for RTI. The information that you submit will be matched against records held on HMRC’s databases, and any discrepancies could lead to inaccurate tax calculations or trigger a compliance check. See our employee data checklist for tips on ensuring the accuracy of your employee information.
HMRC has been phasing in the system since April 2013, although it has granted some concessions during the process.
Most recently, a three day period of grace was announced for late RTI submissions, meaning that small businesses that fail to submit their PAYE information no more than three days after the deadline will not incur penalties.
With effect from 6 March 2015, employers with fewer than 50 employees are required to submit their information via RTI. However, micro businesses with nine or fewer employees have been granted an extended deadline of April 2016.
Much of the impetus has been placed on employers to ensure that their information is correct and that their business systems and procedures are up-to-date.
Full Payment Submission (FPS)
A Full Payment Submission is the main type of document, and contains details of all employee payments and deductions, including income tax, NICs and student loans, together with details of any new employees and those who have left the business. It is particularly important to obtain accurate information for new starters. Without the complete basic data, you will not be able to file any of your employees’ pay details. In other words you are not permitted to ignore one employee and file for everybody else.
An FPS is required each time an employer makes a payment to an employee, either at or before the time of payment, whether this is weekly or monthly, and it includes those whose income is below the lower earnings limit for NICs.
The first FPS should include all employees who have been employed during the current tax year, including starters and leavers, or those who have not yet received a payment, together with the hours normally worked.
Subsequent FPS’ will contain pay and deduction details only for those employees that are actually being paid on that payday.
When you send your final submission for the tax year, you must indicate that this is the case and answer the relevant questions and declarations.
You may also be required to make the following submissions, depending on your individual circumstances:
Employer Alignment Submission (EAS)
Before being able to report using RTI, all PAYE schemes must undergo employer alignment. This involves matching and aligning employee records with those held by HMRC. In most cases it will not be necessary to prepare an EAS as all the necessary employee details will form part of the first FPS.
Employer Payment Summary (EPS)
An EPS should be submitted where no payments are made to any employees in a pay period. This submission is also used where you need to advise HMRC of an alteration to your overall PAYE and NIC liability, recover statutory payments, etc. If you want a deduction to apply to a specific tax month, the EPS must be received by the 19th of the following month.
National Insurance Number Verification Request
This allows employers to validate an employee’s national insurance number, or to trace a number where it is not known.
Earlier Year Update
This submission is used after 19 April to correct any of the year to date totals submitted in your final FPS for the previous tax year, and will only apply to RTI years.
Employee data checklist
Ensure that individuals’ names are submitted in full, spelt accurately, and listed in the correct order, so: Alison Mary Smith, not A Smith, Smith A or Alison M Smith . Avoid using shortened versions (such as Chris or Dave), or covering entries (such as ‘unknown’ or ‘A.N.Other’).
Date of birth
Do not use a default date of birth, and make sure the date is in the correct format (day, month and full year of birth).
National insurance number
Ensure that you submit the correct national insurance number, which will take the form of two letters, followed by six numbers, ending with the letter A, B, C or D.
This article is for general guidance only. We can offer assistance with all your payroll needs, from helping you to maintain accurate records to managing your payroll function on your behalf. Please contact us for further information.