Real Time Information
Real Time Information (or RTI), which was made compulsory in April 2013, was the first significant change in the UK Pay as You Earn (PAYE) system for almost 70 years.
What is RTI?
The introduction of RTI meant the majority of businesses were expected to report their payroll information in real time. From a practical point of view, what this means is that as an employer, once you’re involved in the RTI scheme, you need to inform HM Revenue & Customs (HRMC) of payments made to employees on, or before the day they are made.
Background to Real Time InformationThe background to this change lies in the proposed introduction of Universal Credit which was scheduled for October of 2013, but which has taken much longer to roll out. Universal Credit is intended as a way of simplifying benefits for people seeking work or with a low income. Embracing income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Income Support, Child Tax Credits, Working Tax Credits and Housing Benefits, the new system means that people who qualify will obtain one payment. Because this way of working will require a constantly updated picture of recipients’ income, the need for accurate and up to date information became apparent, thus the introduction of Real Time Information (RTI).
What does it mean for employers?
All UK employers and pension providers are affected by RTI and they are required to operate compliant software to automatically submit their returns to HMRC. Much like the previous PAYE system there are penalties for anyone who fails to submit their returns on time, or deliberately submit inaccurate returns.
There are several steps that need to be taken and there is the timing to get right and whether or not you decide to run your payroll in-house will determine how hands on you need to be. There will also sometimes be out of the ordinary situations to consider.
If you follow the instructions to the letter, there’s no reason why you should have problems with RTI.
What happens when you make your first return?
When you send your very first RTI return, you should also send details of your employees so the information you are using can be aligned with the information held by HMRC. The regular submissions you will make are called Full Payment Submissions (FPS). Employer Alignment Submissions (EAS) may be requested by HMRC before you send your first FPS, but if you’re not asked to do so, then all you need to do is send your employee details with your first submission so they can be aligned.
Once your first FPS has been submitted you’ll get confirmation of receipt from the government gateway as well as your first HMRC validation results. You need to go through the FPS process each time, on, or before making a payment, unless you have employees who are covered by exceptions to the rules as outlined below. In months or weeks where no payments are made, you need to send an Employer Payment Summary (EPS) to HMRC to keep your records up to date, unless your scheme has been classified as an annual scheme (see below).
What about annual payrolls?
Most employees are likely to be paid on a weekly or monthly basis, but there are circumstances where employers will pay their employees only once a year. If you are one of these employers, then you can apply for your scheme to be treated as an annual scheme, but only if you satisfy each of these requirements:
- All your employees are paid annually
- All your employees are paid at the same time, on the same date
- You are required to pay HMRC annually
Are there any exceptions to the ‘on or before rules’?No matter how often you pay your employees, you need to make a return each time, always on, or before the payment is made. The only exception to this is when ad hoc payments are made or when payments are made to employees who aren’t required to maintain a Deductions Working Sheet or P11. The other exceptions are employees who are paid on the results they achieve each day, or receive benefits and expenses that aren’t subject to tax (but are subject to Class 1 NICs) or where notional payments are made.
What about irregular payments?
If you have employees who receive payments on an ad hoc basis, you absolutely must set an Irregular Payments indicator on your employee’s RTI records. The reason for doing this is to highlight to HMRC that this employee is not a monthly or weekly paid employee. If you fail to set the Irregular Payments indicator and your employee isn’t paid within a period of 13 weeks, HMRC will assume that the employee has left your employment. As a result, any director or employee who is paid quarterly, half yearly or annually should have an Irregular Payments indicator added to their records to avoid problems in the future. This also applies to anyone who takes unpaid leave of 13 weeks or more. Making sure you set this indicator will keep you on the right tracks regarding the tax week or month that applies to your employee or director.
How do I deal with employee changes?
Getting things right from the start is really important when it comes to RTI. When you have a starter for example, it’s essential to make sure you have the right systems in place to satisfy the requirements right from day one. In order to make sure you have all the information you need, it’s a good idea to develop a Starter Form of some sort, which you could integrate into your induction process or first day checklist. This way you will be sure that you have all you need to get your RTI timing spot on. A Starter Form will enable you to gather information about the starter, for example whether or not this is their first job, or if they have a student loan, as well as all of their personal details. Starters will fall into one of three categories depending on their current situation and it’s really important to capture this information right at the start so you can make an accurate RTI submission.
When an employee decides to leave your employment you need to issue them with a P45 and record their leaving date on your FPS once they have received their final payment.
The time to collect all the information you need about student loans is when someone starts to work for you. It is for this reason that we suggest that a student loan section is included in your Starter Form. When it comes to processing student loans, things haven’t changed all that much, but once again timing is of the essence from your point of view, because you must ensure that payments start at the earliest possible opportunity.
What are the penalties for getting things wrong?
The RTI rules are crystal clear. It is your responsibility as an employer to submit a full FPS on, or before the date you pay an employee. What’s more, you are required to submit a final FPS for every tax year, which needs to be submitted on, or before the last day that you pay your employees during the tax year. It is also under your list of responsibilities to send an EPS to HMRC on or before the 19 of the month following a non-payment month. Failure to do so will lead to penalties.
During the initial period, late monthly FPS submissions will not be penalised. However, HMRC have made it clear that final FPSs that are submitted late will attract a penalty. For any employer who makes a late traditional return for the tax year ending April 2013, they will face the penalty that would have applied pre-RTI.
If you find yourself in a late return predicament, you will receive a letter from HMRC to forewarn you of the forthcoming penalty. It is best if you resolve the outstanding information issue as soon as possible, otherwise you could be looking at further penalties.
One other area of RTI that could give rise to penalties is the submission of inaccurate information. It is for this reason that it’s doubly important to make sure that you have all your RTI ducks in a row before you even start. HMRC have recently started to adopt a risk-based approach to sniffing out people who may be submitting inaccurate information. The pattern seems to be that they’ll look at what motivated the inaccurate information and what the outcome was for HMRC. All of that said, there is always merit in being able to prove reasonable care and, or making a full and unprompted disclosure to HMRC as soon as you’re aware of an error.
How do I correct a mistake?
There are several situations whereby you might discover that a mistake has been made in your payroll. If you discover that there has been an error in a payroll return that was submitted pre-RTI, then it’s a straightforward case of sending form P35 or P14 to HMRC to resolve the difference. If however, you discover an error in an FPS that you’ve already submitted, what you need to do is submit an additional FPS. You have until 19 April after the end of the tax year in question to sort out problems in this way. If, for some reason you miss this deadline and the error emanates from an RTI submission, then you need to submit an Earlier Year Update (EYU) to sort things out.
Is there any support for operating RTI?
The HMRC website has a wealth of plain speaking RTI support on hand. All you could ever need to know about RTI is there, but the problem for some employers is finding it. That said, it’s only fair to acknowledge that HMRC have made huge inroads into making their site easier to navigate and easier to understand over recent times.
There is a whole section dedicated to RTI. In this section of their website, they will literally lead you from A to Z on the subject of RTI, making each step as easy as it can be. That said, when you are in a corner with a problem as important as payroll, websites can be frustrating and it’s good to have someone to talk to. On this basis, HMRC have an Employer Helpline on 08457 143143 for processing issues, or you can contact their Online Services Helpdesk on 0845 60 55999 for questions that are more technical.
At Payplus we understand that many employers don’t want the weight of RTI resting on their shoulders. We know that you’re often too busy getting on with the profit-making activities of your business to have time to deal with things like payroll on an in-house basis. It’s for these reasons that we’ve developed a range of managed services to suit every employer in need of payroll support.
Irrespective of whether you have a brief, one-off enquiry or you want to pass over your payroll lock, stock and barrel, we’re here for you. Our teams are highly trained, plain speaking and customer focused, which means you’ll get the support you need, when you need it. We’re proud to have provided payroll support to clients in the UK and beyond for many, many years. When it comes to RTI, we’re here to listen to your problems, to find solutions and to make your payroll experience as stress-free as possible.