RTI: Prepare your payroll team now
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.
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.
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.