24th August 2012

All employers will have new tax obligations next year, and new penalties if they don’t comply. Both business and domestic employers (e.g. those with nannies or housekeepers) will have to e-file PAYE deductions data every time they pay an employee, not just once a year: Real-Time Information is coming.

Whether or not an employer uses a computer, HMRC wants real-time information (RTI) about all PAYE, NIC and student loan deductions made. From 2013, all employers will have to give HMRC details online whenever earnings are paid.   

When does it start?

Larger employers (those with more than 250 employees) need to be ready by April, others will follow in the period up to October 2013. 

What is RTI?

Employers currently tell HMRC once a year on forms P14 and P35 how much tax, NIC and student loan instalments their employees have paid. This means that HMRC is always a year behind in knowing whether people have paid the right amount.

From 2013, every time an employee is paid, the pay and deductions information will have to be sent electronically to HMRC; technically the report is due ‘on or before’ the date of payment. This will prove a real challenge for some businesses.

For a tiny number of employers, paper returns will be permitted, but everyone else will need to find a way of filing RTI data promptly. All the major payroll software providers are working on a solution and for micro-employers HMRC will provide a basic tool on its website to allow employers to comply.  There will be penalties for failure to comply, probably like those now in force for late payment of PAYE.

Why the new system?

Many SME employers underpay PAYE each month or quarter: HMRC sees much larger payments in March than in other months. By forcing employers to report deductions with every payment, HMRC can check very quickly whether tax is being underpaid.

In addition, the new Universal Credit is to replace various other credits and social security benefits in October 2013, and the vision is that real-time earnings data will enable the Department of Work and Pensions to adjust Universal Credit benefits very quickly when earnings levels change (once the IT is working properly).

What should employers do now?

The main problem expected with RTI is ‘dirty data’. If the e-filed information cannot be allocated to a taxpayer’s account, because the employer uses the wrong NI number, the system will be bogged down with items in suspense. Employers are therefore being encouraged to cleanse their payroll data in advance: they should be using the correct numbers. 

Good software should do the rest in HMRC’s perfect world. Those who do manual payrolls or use spreadsheets need to plan how they are going to e-file their data next year.

To find out more contact: Stephen McConnell, Director of Business Services Email: stephenmcconnell@mooneymoore.co.ukTel: + 44 (0) 28 9032 3466

Free Real Time Information Seminars

Baker Tilly Mooney Moore is running free seminars in the Autumn on the key facts that employers need to know as well as what they can do to help them prepare for the launch next year.  To find out more contact Jane Campbell on Tel: +44 (0) 28 9032 3466 or E mail: janecampbell@mooneymoore.co.uk