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Expert guide: the nuts and bolts of RTI

25th Apr 2012
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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 RTI timetable

Pilot
• April 2012 Intial 10 employers test HMRC systems.

• May 2012 300 more employers all carefully monitored.

Pilot 2
• July 2012 1,300 further employers to test that the guidance given by both HMRC and software developers is sufficient for mass migration. Decision time for full migration.

Early Adopters
• November 2012 The target is to bring up to 250,000 employers on board by the end of the 2012-2013 tax year

• April 2013 Mass migration of all employers

• Exceptions for large employers that have not been able to change their business processes.

• October 2013 Mandatory for all employers

RTI “on-boarding”

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.

Payroll alignment

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.

Starter and leaver processes

The P45 starter and leaver process will remain as it is until RTI has been successfully implemented and a method for retaining an employee’s cumulative tax code when changing employment has been devised.

The electronic submission of these forms will not be required when a company is operating under RTI regulations since this information will be included in the regular FPS submissions.

A NINO Verification Request message will be available for employers or their agents to check whether the employee has a valid NINO, or that the NINO provided is valid for that employee. Since this check will also be done automatically by HMRC on the receipt of an FPS submission for the employee it is low on the list of priorities for software developers.

Monthly or quarterly HMRC returns process

An employer is required to submit payment to HMRC for the tax and NI withheld from employees along with the employer NI contributions and tax deductions made from subcontractors. The amount to be paid will be calculated by HMRC from the FPS returns made by the employer for payments to employees between the 6th of the month and the 5th of the following month.

If an employer has made statutory payments to employees, it is currently a requirement that they submit an Employer Payment Summary (EPS) before the payment due date indicating the statutory recovery and compensation they want to have taken into consideration to reduce their liability. It is hoped that by April 2013 that statutory compensation and recovery will be automatically taken into consideration by the HMRC systems.

Note that if an employer has not paid any employees within a tax month that they should either submit a ‘NIL’ EPS, or use the HMRC online notification of nil payments webpage.

Earlier year update

There is a proposal that a submission can be made called an earlier year update (EYU) which has yet to be specified. This will allow an employer to adjust the final figures for a previous tax year. This is effectively a replacement for the amendments submissions for P14 and P35.

RTI dataPREPARE FOR RTI - 5 KEY AREAS

All employers should be preparing for RTI now. Payroll agents should be alerting their clients the employer is responsibile under the RTI regulations for getting their RTI submissions right and on time. There are five areas where employers need to act:

Data cleansing
• Ensure your payroll system, or your payroll agent, has official names, dates of birth, gender and, where known, the correct NINO for all your current employees.

New data items
• Normal hours worked - This is a new piece of information required to be reported for each employee for each payment. The Normal Hours Worked are the contracted hours as defined by the DWP

• Passport number - Where an employee is from outside the United Kingdom, where possible the employee passport number should be obtained and recorded against the employee for submission in the RTI data.

• Irregular payment indicator - This needs to be set for employees who are not paid on a regular basis.
  - When HMRC has not received any RTI information for an employee for over 13 weeks their systems will assume that the employee has left that employment unless the Irregular Payment Indicator has been received in that employee’s last RTI submission.
  - Employees paid quarterly, half-yearly or annually should be indicated as being paid irregularly.
  - Employees on maternity leave should be indicated as being irregularly paid if they intend to take a further 13 weeks of unpaid maternity leave

• Payroll ID - This is a new field that is essentially a ‘submission identifier’. It should be used when an employee has two separate employments with the same employer, which are paid in separate payments, so that HMRC can tell which payment is for which employment. It is NOT the employee payroll number, works number, staff number etc.

Business processes
• Check that your business processes are designed such that your payroll is provided with a new employee’s correct name, date of birth, gender, and, if known, NINO, before they are first paid

Software supplier
• Check with your payroll software supplier, or your payroll agent, their timetable for complying with the RTI regulations

BACSTEL-IP supplier
• If you pay your employees through direct BACS, check that your payments software provider can accept and submit revised file layouts from your payroll software

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.

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Replies (11)

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By dhalsey
26th Apr 2012 12:38

How are HMRC going to cope with this...

Given that currently, they can't even process a Nil P35 until September following the 5th April year end submission!

 

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By P2
26th Apr 2012 13:22

Govt Gateway Servers

Does anybody know - are they planning to invest in more servers at the Government Gateway - expecially to cover downtime on the ones they have already commissioned.

Any news on this?

The uploading service has historically been very slow at times.  The monthly traffic is going to increase substantially in the months ahead.

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By rboggon.yahoo.co.uk
26th Apr 2012 16:08

Red Tape

What about the less red tape promise from the Government!!!!!!

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By Denis Lyons
27th Apr 2012 10:23

RTI data maintenance

 

What preparations should employers be making to capture information on other members of their employees household and ensure that the required information is kept up to date?

Linking the benefits and tax regimes (the core requirement for RTI) has a fundamental weakness as tax is based on the individual and benefits are awarded on the basis of the "household". 

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By jonbryce
27th Apr 2012 12:34

Sage Payroll etc
This doesn't appear to be an option in Sage payroll unless I'm looking in the wrong place. Any idea when it will be available, or are we going to have the same sort of problems we had when iXBRL came out?

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Replying to Kylo Ren:
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By neilson.watts
27th Apr 2012 15:13

Sage Payroll solutions

Hi jonbryce,

I can confirm that Sage 50 Payroll solutions (including Sage 50 Payroll and Sage 50 Payroll Professional) for the 2012/2013 tax year do have the ability to submit via RTI.  Currently we only expose this functionality remotely to customers or accountants who have been accepted into HMRC pilot phases during April to October 2012.

HMRC are opening up an early adoption phase for RTI from November 2012 through to March 2013.  We are currently recruiting through our accountants community to offer them the ability to bring your customers onboard early prior to mandation.  If you want to sign-up to this, simply visit bit.ly/RTIwithSageAD and you will be asked to login to our website (once you have logged in you can choose which of your clients you wish to sign up).  Its important to note however that you must ensure you obtain your clients permission to do this.

If you want to find out more about Sage and RTI please visit http://www.sage.co.uk/RTI

Neilson

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By P2
27th Apr 2012 16:27

Sage shortcuts

Are Sage users able to shortcut the Government Gateway servers or are we all in the same sorry mess?

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Replying to Steve Kesby:
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By gg
30th Apr 2012 08:59

re: Sage shortcuts

Sage, along with everybody else who submit via the internet, must go through the Government Gateway as that is the portal that performs the security checks etc.

 

 

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By [email protected]
30th Apr 2012 10:21

The Bacs side of things...

Making your Bacs software ‘RTI Ready’ for the interim phase of the project requires a quick and easy file format change.

Whilst your payroll provider needs to re-configure the payment file you output from your payroll solution, your Bacs provider needs to re-configure your Bacs software to accept that revised file format. It’s a 5-minute job so should be a very low cost or free.

You'll probably need to send a sample payment file to your Bacs provider.  They'll then test the file and send you a ‘config’ file or parameteres, which you will need to apply to your software.

In order for HMRC to link the payment data to the associated RTI data, a randomly generated cross reference will now be included in Field 7 of the Standard 18 file used for Bacs (that's the file format change).  This cross reference will be generated by your payroll solution and used along with other items in the payment file to generate a ‘hash’. This ‘hash’ will then accompany the RTI submission allowing HMRC to match the payment to the RTI data at the other end. 

So, the Bacs element is simple but fundamental. You must ensure your Bacs software can accommodate the new file format from your payroll solution.  If you need more info or any assistance from a Bacs perspective, Albany Software's team will be happy to help.

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By ThornyIssues
30th Apr 2012 13:59

employees BACSTEL-IP

"BACSTEL-IP supplier
• If you pay your employees through direct BACS, check that your payments software provider can accept and submit revised file layouts from your payroll software"

 

So just why would employees BACS payments be of use to an employers payments reporting tool then?

 

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By springacweb
24th Jul 2012 19:24

How are pensions and holiday pay etc paid in advance for a period treated for RTI?.

 

We currently calculate  PAYE based on the period the pension is meant to cover i.e quarter commencing 6 April to the 5 June is paid to the pensioner to allow the cheque payment to clear their bank account by the 6 April. The calculation is therefore processed by say the 1st April. PAYE is calculated based on month 1,2, and 3  and the net payment made to the pensioner. The PAYE is accounted for to HMRC by the July due payment date.

 

The P60 correctly reflects the income for the year and the correct tax charge thereon.

 

Will RTI allow this forward calculation?

 

 

 

 

 

 

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