More form filling, less flexibility for business owners

RTI PAYE service - what do business owners need to know and how will it affect them?

This is a new HM Revenue & Customs (HMRC) Online system that was introduced from April 2013. It requires employers to file their payroll details with HMRC every month/week before they are able to pay their staff. This means employers will no longer be able to give cash advances to staff which then later deduct from their wages.

Currently employers only file a summary of this information once a year which has led to issues in recent years with individuals under or overpaying taxes due to incorrect tax codes. This new system will mean that the information held by HMRC should be up to date and hold accurate details of an individual’s earnings at any point during the year.

HMRC claims that RTI will:

• make the PAYE process simpler and less burdensome for employers and HMRC; for example by removing the need for the end of year return (P35 and P14) and simplifying the employee starting and leaving processes
• make PAYE more accurate for individuals, over time reducing the number of bills and repayments sent after the end of the tax year
• enable HMRC to pursue late payments more effectively
• support the payment of Universal Credits
• reduce Tax Credits error and fraud

So as an employer how exactly will it affect you and what do you need to be aware of?

Payments and penalties

Under the current system of annual filing HMRC are unable to tell if employers are paying the correct amounts of PAYE & National Insurance contributions throughout the year however the new monthly reporting system will enable them to check this.

The penalty system was updated in 2010 in anticipation of the new RTI service and penalties will be imposed based on the number payment defaults on a percentage basis. The percentage penalties range from 1% for 2 to 4 defaults in the year to 4% for 10 or more. Employers paying 6 months late will incur a penalty of 5% with a further 5% charged if the payment is 12 months late. HMRC have said that they will issue warning letters for first and second defaults before penalties are issued so that employers are aware of the risk of incurring penalties.

Payroll software

Payroll software will need to be updated so that it can pass the information to HMRC. All payroll software developers will have accounted for this but you need to make sure you have got the necessary update. If you are not using payroll software you will need to use this going forward, however there is some free software provided by HMRC called Basic PAYE tools that is available for small employers.

Alignment process

There will be a payroll alignment process before each employer goes onto the RTI system so it is important to make sure you hold all the necessary employees details beforehand (name, address, National Insurance number and date of birth).

Owner managed businesses

We had been hoping there would be an exemption for owner manage businesses who currently only file an annual payroll return as they are paid below the limits for Income tax and National Insurance. As the deadline approached and nothing was announced we have had to assume that these businesses will have to file a monthly payroll return under the new system. This is a big increase in form filling for small businesses when the government had pledged to reduce red tape for businesses.

This HMRC checklist is useful http://www.hmrc.gov.uk/payerti/getting-started/business-readiness-checklist.pdf along with these FAQ's http://yorkshireaccountancy.co.uk/rti-all-you-need-to-know/.
 

Blog by Carol Lewis, Bainbridge Lewis
 

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