This article was first published in the November 2012 UK edition of Accounting and Business magazine.
In April 2013, when employers run their first payroll of the new tax year, most will also be pressing the button to submit their first Real Time Information (RTI) submission to HM Revenue & Customs (HMRC). How smoothly that submission process goes depends hugely on how well employers prepare now, and how effectively HMRC addresses outstanding questions.
Under RTI, instead of telling HMRC at the end of the year what PAYE and national insurance deductions have been withheld from employees’ pay, employers will submit that information every time they run a payroll. This has obvious implications for payroll software, hence HMRC’s close working with software providers to clarify data needs and support the development of RTI-compliant payroll software in time.
Results from HMRC’s ongoing RTI pilot are encouraging. ‘Once our customers have done their first and second submissions, they find it quickly becomes second nature,’ says Neilson Watts, associate product manager at Sage. ‘The way we have integrated RTI into our software, the payroll process does not change. There’s just an extra click of the button to make the submission.’
But RTI is more than a software issue. For starters, employers need to make sure they hold accurate payroll data. Mismatches between HMRC’s data and that held by employers could cause RTI submissions to be rejected. Employers need to audit their data in advance of their initial RTI submission, asking employees to confirm information such as their surname, forename, gender, address, date of birth and national insurance number. ‘It’s really important to get these records right,’ says Karen Thomson, associate director of policy, research and strategic visibility at the Chartered Institute of Payroll Professionals (CIPP). ‘Our payroll manager contacted all CIPP employees and asked them to confirm the key information. She then compared it to the details on our payroll system. We were about 95% accurate.’ Most of the mismatches involved use of a nickname rather than a full name, but even such minor details need to be corrected.
RTI also has wider implications for payroll and recruitment processes. ‘People shouldn’t underestimate RTI,’ says Glenn Collins, head of technical advisory at ACCA UK. ‘It requires them to think about how it will impact their business. For example, if you want to bring in employees who are not UK nationals, there’s a range of issues around what will or won’t be acceptable in terms of their identification. There are many practical issues, and information is taking a while to come out from HMRC.’
While employers involved in HMRC’s pilot may be gaining RTI understanding, there are concerns about low levels of awareness elsewhere and the numbers of employers needing to take action. Phill Robinson, CEO of the IRIS software group, notes that 23% of the UK’s 1.2 million small and medium-sized enterprises (SMEs) are believed to have no payroll software. ‘Between now and April, they need to take decisions about how they will meet the RTI requirements,’ he says. A survey of payroll software providers by Sage also found ‘a substantial number were either not ready or didn’t know what RTI was – that’s a concern’.
Software providers are helping to increase RTI understanding, however. ‘We offer free webinars to customers,’ says Robinson. ‘We are also doing 50 training courses up and down the UK covering the RTI preparatory work.’ In October, HMRC itself began a major RTI awareness-raising campaign.
One challenge with stimulating employer action is that RTI is being introduced to enable the introduction of the Universal Credit. There doesn’t seem much in it for employers themselves, though HMRC is arguing differently. ‘Reporting PAYE in real time will reduce administrative burdens on employers by £300m net per year by integrating the reporting of PAYE information with normal business practices,’ says Jane Brothwood, HMRC’s head of RTI communications. ‘It will make PAYE simpler and more efficient, removing the end-of-year process for all employers and streamlining the starter and leaver process. Employers in our pilot have confirmed that reporting PAYE in real time reduces burdens and feedback is that they find reporting in real time easy to operate.’
However, as CIPP’s Thomson notes: ‘Those in the pilot are all willing employers and they have been handheld. The big bang for RTI will be when all the SMEs join in.’ Unless they prepare carefully, they may not find the process so straightforward.
One final warning for employers: manipulating PAYE payments to HMRC in order to manage cashflow will be spotted. ‘Under RTI, HMRC will know how much tax and national insurance employers have withheld from their employees – and therefore how much they expect to receive at the end of every month,’ says Alex Rowson, director of QTAC Payroll Products and chair of the HR and payroll special interest group of software developers’ association BASDA.
How to prepare for RTI
- Understand what RTI involves – read any HMRC communications, review its online information, sign up for software providers’ webinars or seminars, or access informative websites such as PayeRti.org
- Contact your payroll software provider to check the product you use will be RTI-compliant.
- If you do not currently use any payroll software, consider whether to use HMRC’s free Basic PAYE Tools, buy an RTI-compliant software product or appoint a payroll bureau.
- If you use BACS to make payments to HMRC, check your BACS software will be hashtag-enabled (required to enable HMRC to link payments with submissions).
- If you use a payroll bureau or accountant, ask what they are doing to prepare for RTI.
- Data cleanse payroll information and make sure you can access all necessary employee details, including normal hours worked.
Sarah Perrin, journalist