Payroll – in Real Time?
Thursday, March 21st, 2013
As you are no doubt aware employers are responsible for reporting details of employees’ pay, expenses and benefits to HM Revenue and Customs (HMRC).
They are also responsible for making the relevant deductions from the payments, broadly income tax, national insurance contributions and student loan deductions.
The new procedure will not only impact on how the information has to be submitted but also the timing and will result in changes to your payroll processes. RTI is mandatory for all employers and is to be implemented from April 2013.
Under RTI employers, or their agents, will be required to make regular payroll submissions for each pay period during the year detailing payments and deductions made from employees each time they are paid.
Whilst the majority of payroll systems are gearing up to ensure that they are able to deal with the new compliance requirements of the RTI system, there are some important changes which will need to be made to the way you process your payroll.
HMRC are keen to get RTI up and running as it will enable them to ascertain details of an employee’s circumstances on a more timely basis. It will also provide details for Universal Credit, the new state benefit system which is due to start being rolled out from October 2013 onwards.
The first step in the RTI process is that you will need to send employee data to HMRC which they will validate using their own databases. Therefore, to avoid any discrepancies during the validation procedure you need to ensure that the employee information you currently hold is complete and up to date.
In particular you need to ensure that the following employee details are accurate: Full employee name, Date of birth, National insurance number (NINO), Full postal address (this is a mandatory field where the NINO is unknown) and Gender.
Payments to HMRC
Please bear in mind that under RTI HMRC will be aware of the amount due on a monthly/quarterly basis. This will be part of the information reported to HMRC. HMRC will expect to receive the PAYE and NIC deductions less the payments each month or quarter (small employers only).
Some Further Complications
Under RTI it will not be possible to put through wages at the year end of the business and assume this has been paid throughout the year, for example to utilise a family member’s national insurance lower earnings limit which gives them credit for state pension and statutory payment purposes.
Wages should be paid regularly and details provided to HMRC through the RTI system on a timely basis.
The HMRC guidance on RTI includes rules which will be difficult for some employers to work within. For those employers who have casual staff the following HMRC guidance will cause difficulties:
‘Under RTI employers operating PAYE will have to tell HMRC about payments of earnings to all employees, even where an employee earns less than the lower earnings limit (LEL), current £107 a week. This is a change from the current situation where employers do not have to maintain a P11 if someone for example earns £20 a month, being will below the LEL.’
Employers who have casual staff currently let HMRC have details of their pay at the end of the year using a P38A. Unfortunately, this procedure is not available under RTI. HMRC need details of pay when or before the payment is made.
Currently where a student only works in the college holidays it is possible for them to complete a form P38(S). The completion of this form allows employers to allow the student to be paid without deduction of PAYE although national insurance contributions are still payable.
This favourable treatment assumes that the student’s wages will fall below the personal allowance for the year, currently £8,105.
Unfortunately this favourable treatment will not be available under RTI and students will have to be taxed in the normal cumulative way which allows only a proportion of the personal allowance to be set against each payment. Where they end up paying tax, they will need to recover this from HMRC by claiming a refund.
The end of the P35 Procedures
Under RTI the P35 procedures will no longer be necessary. For most employers therefore the last P35 form which will need to be completed will relate to 2012/13.
RTI is a big change to PAYE and will take some time for employers and their agents to get to grips with. HMRC are frequently updating their guidance on the new procedures.
If you require any assistance, please contact us:
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Co Down BT34 1JZ
Tel. 028 302 69933
Fax 028 302 69944
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