The big challenge of real time information (RTI) for PAYE is familiarising yourself with the main requirements and adapting your processes. Andrew Downey from Sage’s Accountants Club sets the scene for April 2013.
The UK has one of the most complex payroll systems in the world. However, over the next 6-12 months, we will see some of the most fundamental changes to the reporting regime behind PAYE since its inception in 1944 and regardless of whether you’re running payroll in-house or on behalf of clients, you need to know what these changes mean.
Real Time Information (RTI) is being introduced by HMRC to provide more accurate and up-to-date information on employees and pensioners, in a move that will shift the PAYE reporting requirement from a static annual process to one which must be completed every time you or your customers pay their employees. Not only will this support the introduction of Universal Credits which will be launched in 2013, it will serve to improve the overall operation of PAYE. By increasing the regularity of reporting, it enables HMRC to respond more efficiently to errors that lead to the under- or over-payment of tax and should ultimately serve to minimise the administrative burden of Payroll Year End.
Yet with such a shake-up to the industry, it comes as no surprise that there are some question marks about what RTI will actually mean for accountants and employers, and what needs to be done in preparation for the new process. All businesses, regardless of size or sector, will be affected by the introduction of RTI so it is important to understand what the changes mean in practical terms, as well as any potential problems you might have negotiating the changes in order to guarantee a smooth transition.
What are the issues?
Initially employers may experience some teething problems while they adapt to RTI but, fundamentally, the basics of doing a payroll will remain the same. It’s simply the frequency with which employers send information electronically to HMRC that is changing.
If you control your payroll in-house and use commercial payroll tools the software should make this process more efficient. Employers may, however, see some changes to the processes and procedures used by their accountants or outsourced payroll service providers in order to ensure they meet their duty of care of paying employees and HMRC on time, while also guaranteeing compliance by submitting RTI returns on time.
One of the main responsibilities that now sit with employers is to make sure that the data they are submitting is accurate, particularly with regard to the full name as it appears on official documents such as a passport or driving licence, correct date of birth and accurate National Insurance number.
Carrying out a full data cleanse on your records and ensuring all entries are accurate will be essential in making the smooth transition to RTI. According to HMRC, the 2009/10 employer returns showed there are 128 employees called Mr, Ms or Miss Dummy, 572 employees whose surnames ranged from “X” to “XXXXX”, 507 A N Others, 160 Tests, 100 Do Not Use, 75 staff called Casual, 11 Cleaners, nine Workers, six Students and 824 employees marked as “Unknown”.
Furthermore, if the records submitted do not match those at HMRC, duplicate or inaccurate entries could be created which could then result in incorrect tax calculations or compliance checks. Taking the time to ensure that your records are in order ahead of the introduction of RTI will pay dividends in the long run.
If you’re an accountant or payroll bureau, you should also invest time in familiarising yourself with RTI and examining the processes you use with your client such as registering new employees or updating existing employee information, you may also want to take this opportunity to educate your clients around the provision of timely and accurate data, as these are both integral to ensuring that RTI implementation is a success, and ensuring that your employees continue to be paid accurately and on time.
HMRC is using the same proven technology and infrastructure that it has in place for Payroll Year End, which is why the body is confident of the timescales involved. At Sage we’re also using the same proven technology, infrastructure and user experience that our customers are comfortable with and are already taking thousands of our UK customers through the RTI pilot process. By working through RTI submissions with a large number of our customers we have already built up the knowledge and expertise to enable us to be in the best position possible once mandatory migration comes into place for the UK’s employers.
Overall, the co-operation and understanding between employers, accountants, payroll service providers, software companies and HMRC points to a smooth transition to the new reporting format.
What to do next?
Historically, when regulatory change of this magnitude is introduced, the challenge for businesses is avoiding the temptation to wait until the last minute before implementing the changes.
Given the challenging economic climate, it's easy for businesses to pay more attention to day-to-day operations than longer-term procedural changes. However, the benefits of getting prepared for RTI earlier, and encouraging your clients to do the same, will mean that participating businesses will no longer be required to submit an all-encompassing year-end payroll, and should achieve greater business efficiencies as a result.
Accountants should also be taking the opportunity to educate clients about RTI and the importance of having up to date, accurate data to ensure a seamless transition. RTI also presents accountants with the opportunity to recruit additional clients who do not want to have the responsibilities of submitting such regular updates to HMRC.
Andrew Downey is Accountants Club Priority Link Team Manager for Sage UK. For more information on RTI and what it means for your business visit Sage’s RTI information hub.