RTI troublespots: Starters/leavers, CIS, NMW & multiple FPSsby
Rebecca Benneyworth responds to some of the quirks of RTI raised by AccountingWEB members during recent weeks. Click the headings below to go to the issue you want to research.
- Starters and leavers
- CIS and RTI
- RTI and employees posted abroad
- Splitting full payment submissions (FPS)
- Number of hours worked
- RTI filing concessions for daily paid staff
- Late filing and inaccurate penalties
By logic, the efiling philosophy that’s driving RTI should have signalled the end of the employee tax code forms and their like. While P45s were retained after protests from business about doing away with something employers were familiar with, the P46 form for those without P45s will not be filed under RTI. Instead, HMRC’s guidance for taking on a starter explains that you must submit details of new employees to HMRC when you make your first payment to them and include the details on your next Full Payment Submission (FPS).
To do so, you will need to collect all the traditional information from their P45 (if they have one) and enter it into your payroll system before you pay them for the first time. This information should include an indication of the employee's employment situation - statement A, B or C, which was previously included on form P46. This category should be included in the first FPS that includes them. If you haven’t retrieved this information from your new employee's P45, include statement B (this is their only job, but they may have received income from other sources). You should also only include pay and tax figures from their employment with you, not the year to date figures. Getting the employee’s basic details and data right is particularly important, as its computers will overwrite the address on their record when you include them for the first time in an FPS. HMRC has provided a starter checklist (PDF - right-click link and "save as..." to download) which is almost identical to the old form P46; this includes the mandatory data fields and statements A, B and C, and a question about student loan deductions. It is an interactive PDF which can be completed on screen and saved. But it is for your use only to collect data - do not submit it to HMRC.
When someone leaves the company, the employer will give them a P45 to summarise their tax status so they can pass on the data to a new employer; P45 is not submitted to HMRC; instead, the leaving date will be recorded on the FPS when the final payment is made, the ICAEW Tax Faculty advises on its RTI guidance page.
Construction companies that supply or use subcontractors will already be reporting monthly deduction figures via the Construction Industry Scheme (CIS), but questions have been raised on AccountingWEB about the timing of CIS and RTI submissions and potential discrepancies in the amounts declared. In the latter case, a member worried that if the CIS deduction data arrived after the monthly RTI run, the reports might not tally with PAYE paid quarterly.
There should be no need to fret as CIS tax deducted does not go through RTI. Tom McClelland responded: “The client should also (already) be filing a CIS300, so HMRC will already have the information it needs to add the CIS300 and FPS submissions together to arrive at total liability.” Companies will, however, need to file an EPS to claim their CIS offset. Then their payments will balance with their RTI filing, he added.
One member was concerned about the practicalities of reporting foreign tax offset against PAYE and how this will be reported at the year-end under RTI - “or is this back to paper amendments?” HMRC has recognised that employers may encounter problems where earnings are delivered by an overseas employer, and has included ad hoc payments made outside of the regular payroll and notional payments are included in HMRC’s statement of Situations where employers will not have to report PAYE information ‘on or before’ the time they pay their employee. In its guidance for employers operating RTI for expat employees, HMRC said it would apply “common sense” in allowing some employers to claim a reasonable excuse for late RTI filings or PAYE payments on behalf of expats. “HMRC is not expecting employers to materially change the operation of their current UK or overseas payrolls for making payments to employees where these payroll practices are reasonable and widely accepted,” the department added. Where there is late reporting for expats, HMRC expects it to take place no later than the next regular monthly payroll date, and that the relevant payment would normally be made to HMRC within the normal PAYE deadlines for that month. HMRC will be on the look out for any efforts to use this arrangement for avoidance or manipulation and added that it would also want to see any employment income paid in respect of employment-related securities such as the exercise of share options to be reported.
There have been several queries about doing separate payroll runs, for example to separate directors from “shop floor” staff, or to handle weekly and monthly payrolls in parallel.
Yes, you can run two payrolls and submit two FPSs in one month, commented Euan McLennan, and 4-5 might be needed for weekly staff.
You are free to submit several FPSs per month or cycle, reporting separate employees. You will just file each bit of the payroll on or before at the appropriate time. Make sure that all of the references are correct on the software – same employer reference and same accounts office reference.
However Euan was concerned that his existing approach of compiling weekly summaries and payslips and then amalgamating them when the monthly payroll is run might not work under RTI. The solution adopted by his software supplier Moneysoft will be to generate 52 FPSs a year, each showing the year-to-date and current period pay for the weekly staff and the YTD figures for monthly staff. Staff marked as monthly will not be treated as leavers if there are no current pay details shown in the weekly FPSs. And any staff not paid under their normal pay frequency will be marked as being on an irregular pay pattern on that FPS to stop HMRC treating them as having left.
Many people have been troubled by this new field required in RTI submissions. “What happens if someone is employed on an as and when basis and do not have normal hours as such?” asked JohnCharlesworth. The first point to emphasise is that the RTI hours worked figure will not be used for minimum wage enforcement - this data is for benefit entitlement only.
Just select the band that most closely represents the hours a person is normally expected to work. Those not expected to work a set number of hours would fall into band D “Other”. Neiltonks hit the nail on the head when he commented: “You don't have to continually re-evaluate this field every period. You only need to worry about it if the number of hours a person is normally required to work changes (and then only if the change pushes the person into a different band). Don't lose sleep over it, it's not that important.”
This issue also cropped up in the RTI troublespots article on low-paid directors, which included a long sequence of comments about whether directors were subject to the national minimum wage. To recap, directors without a contract of employment and paid a fee for being office holders are not subject to NMW, nor does this fee need to be reported via PAYE RTI.
HMRC’s view is that number of hours for many directors will be 30+ on the FPS, but if you know that a director does very few hours you should report accordingly. However, if a spouse of a director is an employee then you should be paying NMW for hours worked otherwise the company is exposed to penalties.
HMRC released a number of “easements” to the on/before filing rule at the end of 2012. One of the key beneficiaries of a relaxation in the rules relates to daily paid staff, where all the following conditions apply:
- staff are paid daily for work done on that day, and
- they are paid by cash or cheque (not electronically), and
- payment is made at a time (11:30 p.m. for bar staff?) or place (at the field gate for crop pickers?) where it would be impractical to make an RTI submission on or before the payment, and
- the employer cannot know how much the payment will be in advance.
In these circumstances, the RTI submission can be made up to seven days later. This concession still falls short of the ICAEW Tax Faculty’s campaign to standardise on monthly reporting, but every little helps. There are also relaxations for ex-pat staff (as indicated above) and for ad hoc payments made out of the normal payroll cycle.
The latest ‘on or before’ guidance includes a discussion of managing daily payments to the likes of bar or catering staff where it is impractical to report on or before (thanks to Cloudcounter for the link and to Aburt01 for the link to the Exceptions to reporting section of the PAYE ‘on or before’ paying an employee guidance page.
As Malcolm Greenbaum reminded us, draft legislation was issued on 11 December confirming that filing penalties for RTI will start from the 2014/15 tax year. But inaccuracy penalties will operate in the same way as for all other taxes (careless, deliberate errors etc) and will start from 6 April this year.
Late payment penalties from 2014/15 will not be cumulatively assessed as they are now. For this period the first late payment will not be a default. The next three defaults in the year would have a penalty of 1% each, the following three would have a penalty of 2% each, then 3% for the following three, then 4% for the next two. This means HMRC can assess penalties each month and will not have to wait until the end of the tax year - it also means smaller penalties going forward. The legislation to make this change will be in Finance Bill 2013, but HMRC have indicated to me that the old rules will continue to apply throughout 2013/14.
Rebecca Benneyworth is lecturing throughout March on ‘RTI and other PAYE issues’ as part of the Tolley CPD Seminars programme. Look out for more RTI troublespot articles on issues raised at her talks and on AccountingWEB’s Any Answers page.
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Rebecca trained in London with Kidsons and, on qualifying, spent some time as Chief Accountant of a manufacturing company. She now has her own small practice in Gloucestershire that comprises of owner managed businesses and small companies.
She also lectures extensively for a range of professional bodies, accountancy firms,...