Expert guide: the nuts and bolts of RTI
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.
• April 2012 Intial 10 employers test HMRC systems.
• May 2012 300 more employers all carefully monitored.
• 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.
• 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
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.
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.
PREPARE 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:
• 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.
• 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
• Check with your payroll software supplier, or your payroll agent, their timetable for complying with the RTI regulations
• 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.