Alex Rowson, technical director at payroll software house QTAC, explains the implications of HMRC’s Real Time Information (RTI) initiative and offers practical advice for small businesses and practitioners.
As has been explained elsewhere, HMRC’s Real Time Information initiative is essential to the successful implementation of Universal Credits scheduled for the autumn of 2013.
The other objective of the project is to make PAYE more accurate. When it is working, HMRC will be able to recognise where employees are receiving income from more than one employer, and adjust the tax codes accordingly.
The existing system does not provide HMRC with any data on employer tax and NIC liabilities at the end of each tax month, so RTI will help the department late payments and underpayments more effectively.
The process of bringing employers into RTI is called ‘on-boarding’. Every employer in the pilot will receive a separate invitation to join RTI for each PAYE scheme that they operate, with an “on-boarding date” specifying when they should send their first RTI submission for each scheme. During the pilot only employers who have received an invitation from HMRC to participate in the pilot will be able to submit RTI files. The HMRC migration team have yet to decide the ‘on-boarding’ process for ‘Early Adopters’ and the mass migration of employers in 2013.
The first RTI submission needs to contain the necessary data to carry out a payroll alignment. This step will be achieved by submitting either an electronic Employer Alignment Submission (EAS) or a first Full Payment Submission (FPS)
After a successful response message has been received for either of these messages the employer will have started RTI and must comply with the filing regulations from that point on.
The key difference between the first FPS and a normal FPS is that the latter will normally only provide information for employees who have actually been paid in the period. The first FPS, however, must show every individual employed since the start of the tax year (even if they have left at that point or have not been paid in that period) to ensure that Payroll Alignment is completed correctly. Any records that HMRC have for any employee not on the submission will be updated to show that employee as having left that employment.
Pay Period Process
Once on-boarded the employer is required by the RTI regulations to submit a Full Payment Submission (FPS) for all employees paid ‘on or before’ each date of payment. This includes employees who would previously have been submitted on a P38 (A) supplementary return at the end of a tax year.
HMRC systems will check employee details in every FPS submission in order to identify the employee, and if an employee is submitted with no NINO (National Insurance Number), if a valid NINO can be established the employer will receive a notification of the NINO that should be used for that employee. This may be some days after the submission of the FPS and be communicated to the employer using the same channel as P6, P6B, P9, SL1 and SL2 notices are communicated to the employer or their agent.
Alex Rowson is technical director at Qtac Software, and chairs the BASDA committee liaising with HMRC on the RTI implementation programme. A longer version of this article first appeared in the ICPA magazine. More advice and information from ICPA is available from the institute’s directory page on AccountingWEB.