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RTI: Prepare your payroll team now

1st Nov 2012
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AIA

Robert Lovell explains the implications of operating PAYE in real time and offers up some practical advice for small businesses and their finance departments.

By 6 April 2013 almost all employers and pension providers will have to report payroll information to HMRC on or before every payday. By October 2013 it will be mandatory for all employers.

With just a few months left to prepare for the real time information (RTI) initiative, AccountingWEB has pulled together a nuts and bolts guide on how best to prepare your finance team.

Data quality

The greatest challenge facing small businesses will be making sure the data matches HMRC's. More than 80% of data quality problems HMRC encounters are connected to employers holding incorrect or inadequate information on employees’ names, birth dates or NI numbers.

Payroll and finance managers should make sure the information they hold on employees is accurate and where possible, check the information against an official document such as an HMRC document, passport or birth certificate.

If required, employees can locate their NI number by downloading form CA5403 from the HMRC website. Employees who have never been issued with a NI number should contact Jobcentre Plus.

The four new submission files:

Employee Alignment Submission (EAS):  A one-off single file for each PAYE reference which allows HMRC to align data held by the employer with data held by HMRC on their systems. Once you’ve sent that you’ve joined the RTI scheme.

Full Payment Submission (FPS): This is sent periodically and you can send multiple files, so if you have a weekly and monthly payroll you can send them independently of each other. It includes employee data, year-to-date and employee payment values.

Employer Payment Submission (EPS): Replaces the current P35 form. It tells HMRC periodically again what the employer liability is.

National Insurance Verification Request (NVR): Replaces the current trace form, and allows employers to send in bulk, 100 at a time, NI verification submissions. There is a limit of 100, but HMRC will receive multiple files, so if you have a high turnover and several hundred starters in a period, you can send multiple files.

Philip Fisher, head of employment tax at PKF, said ensuring you've got all your data correct was the “biggest impediment” facing small businesses.

“It's just so easy not to,” he said. “Putting a dash in the wrong place, stupid little things like that - it's really easy to get wrong.”

Fisher added that there was all the historical data to consider as well: “If you registered people with dummy NI codes or dummy birth dates, that doesn't work anymore, and it’s surprisingly prevalent.”

Currently, HMRC has on its records more than 3,000 employees with an NI number of AB123456 or AA111111.

The NI number is perhaps the most important piece of data as the unique identifier for each employee’s records.

Lisa Allen, business analyst specialist at Sage, said employers can start cleansing their data: “It’s really important they do this, they won’t want to get into the RTI submissions and then have to deal with a load of rejections where HMRC can’t identify their employees.”

Fisher added that the other area, which isn’t connected but is a good discipline, is to consider whether there are any individuals who should be on the payroll and aren't.

“With harsher penalties, as part of the RTI exercise, you should also be doing an overall review of your PAYE and NIC compliance,” he said.

Communicating with staff and changing procedures

The first thing for employers to do in preparation is to really understand what RTI is, and to keep staff informed about what's going on.

Sage's Lisa Allen said: “Real Time Information gives you a hint that you will have to send information in real time, but it doesn’t tell you exactly what it’s really all about.”

Understanding RTI isn’t something that professionals will need to study up on for months, however you may need to collect and record more information from your employees in order to report your payroll information to HMRC.

The employees also need to know how important the issue of accurate data is too, which is not always an easy task. Businesses will have to look at their internal processes and how they gather that information.

As well as recording additional information when businesses first take a new employee on, employers may need to make changes to an employee's payroll record in certain circumstances. For example, if an employee takes unpaid leave you need to set an irregular payment indicator when you make their final payment for that period or HMRC will assume that they've left your employment.

Businesses won't report new starters to HMRC separately any more. Instead their information will be automatically sent reporting payroll information.

Employers won't have to report leavers as a separate process any more. They must continue to provide a P45 to employees who leave, but don't report the P45 part 1 information to HMRC using PAYE Online for employers any more. Instead, set their leaving date on their payroll record so it will be automatically sent next time the business reports payroll information.

Employers will also no longer have to complete an end-of-year return (forms P35 and P14) or P38A supplementary return because your payroll software will tell HMRC about all payments made each time payroll information is reported.

Businesses will need to:

  • indicate on last payment submission on or before 5 April that this is the final submission for the tax year and complete the end-of-year declarations and questions
  • continue to provide each employee and pensioner with a form P60 by 31 May
  • continue to complete and file any forms P11D and P11D(b) due under the existing PAYE arrangements

Businesses should also have contingency plans ready in case of computer problems, such as a loss of internet connection.

Software

Businesses should update or acquire software as soon as possible or use a payroll provider.

To be ready to report payroll information each payday, employers must do one of the following:

  • get payroll software if you don't already have any - some packages are free
  • update existing payroll software to a version with this functionality
  • use a payroll provider such as an accountant or payroll bureau to do the reporting for you

Handling the relationship with your software provider will vary from provider-to-provider, some of which have been on the pilot scheme since April and July. Some of the most commonly used payroll applications are covered in a companion article, RTI: Is your software ready?

It’s important to find out if your provider has been part of the pilot, and if they’re not, then by now they should have been talking to you about what they’re doing with regards to RTI.

New start-up businesses will also from this month have to start submitting immediately via RTI.

HMRC has produced a business readiness checklist to help employers get ready for the change.

Further reading

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By neiltonks
02nd Nov 2012 13:18

Clarify

The statement that:

"If an employee takes unpaid leave you need to set an irregular payment indicator when you make their final payment for that period or HMRC will assume that they've left your employment."

is confusing two separate aspects of RTI.

Under RTI, if HMRC don't receive any information at all about an employee for three months they'll assume the employment is ended. The irregular payment indicator prevents this, so it needs to be set for employees who are likely to not be paid for periods of three months or more (e.g. casuals), and should also be used for anyone taking unpaid leave of at least three months. Note this may include women on maternity leave if they're taking the full 52 weeks off, since SMP ends after 39 weeks.

There's a separate flag to indicate that an employee's pay in an individual pay period has been reduced due to them taking unpaid leave during that pay period. This is to be used in the calculation of Universal Credit. It's a new item from April 2013 (i.e. it's not part of RTI in the current pilot phase).

 

 

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By ahalgryn
02nd Nov 2012 17:01

Mandatory for new schemes?
I've heard at one or two seminars that new PAYE schemes registered from 1 November '12 will be automatically enrolled into RTI and that this is mandatory. Although I believe a letter can be sent to HMRC to opt out until the April '13 compulsory date. HMRC themselves don't know the answer (as usual).

Can anyone shed any light?

Thanks.

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Replying to lionofludesch:
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By confused.com
13th Nov 2012 14:25

New PAYE schemes and RTI

This could well be true - it was mentioned at an HMRC seminar last month, although the HMRC speakers clearly didn't know what they were talking about. The rules are changing every 5 minutes in any case, so nobody really knows where they are with things!

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By npreynolds
02nd Nov 2012 18:10

accountant's comment

I must first of all declare my position. I am an accountant in practise,. My firm runs payrolls (as well as providng added value services). We use Sage, We have the data we need to cope with RTI.

What worries me is that when it comes to tax planning we will no longer have the option to back date bonuses. RTI means we will have to be smarter about tax planning. We will need to know the leve of  profits as the accounting year end approaches and deal with dividends and directors' bonuses "live" as it were. We will need to give advice on bonuses prior to the accounting year end and pay the paye in the next month.

So as well as pressure on the payroll record keeping here is a pressure on the overall accounting system

 

 

 

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RLI
By lionofludesch
04th Nov 2012 16:04

Backdate bonuses ?
Gosh.

Backdate bonuses ?

Gosh.

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By ahalgryn
13th Nov 2012 14:33

Online PAYE registrations updated

I noticed on the online registration forms for PAYE HMRC have added in a tickbox to opt out of RTI for now. At least we know where they stand!

Andrew Halgryn

www.boox.co.uk

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By brucier
13th Feb 2013 13:05

Confused.com

Our Practice is ready for RTI however I have been trying to get a straight answer to the following scenario. I cannot get through to the HMRC Help-desk so I was wondering whether any persons here would know the answer.

When we move into 13_14 we will have a few PAYE Schemes which we look after, on which there will be no Employees thereon. The Company is still live however the Director/Employee has chosen not cease PAYE Income due to several reasons. It is envisaged that he will start again in 13_14. Do we therefore have to have the PAYE Scheme set up on our Software and then submit an FPS [Under 250 employees] in Month One ticking the box to say that there are no payments due that month, followed by a like FPS each month thereafter. That is scenario 1.

 

Scenario 2 is a PAYE Scheme that it set up for a Company to operate a CIS Scheme. there are no employees on the payroll nor will there ever be so its purely for CIS.

I have trawled through the information on here and apologies if I have missed the answer but any help would be good.

Brucie

 

 

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By Ian McTernan CTA
15th Mar 2013 12:27

Divorced from reality

If you want to know how far divorced from reality the people who designed this system and were on our representative committees were, this sums it up:

Payroll and finance managers should make sure the information they hold on employees is accurate and where possible, check the information against an official document such as an HMRC document, passport or birth certificate.

In the real world many smaller companies don't have the luxury of a dedicated payroll or finance manager nor do they have the time to faff about checking documents to see whether an employee's name is not spelt exactly how HMRC have it on their records.

It's going to be fun...

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