Many UK businesses are apparently unaware of the impending requirement to submit Real Time Information for PAYE - let alone what their responsibilities will be or how soon they will need to assume them. So FSN writer Lesley Meall finds out what’s looming on the horizon, why many organisations regard it as a ‘ bad thing’, and what employers and pension providers can do to prepare for the inevitable.
The UK government has a plan: by October 2013 it expects all employers and pension providers to join HM Revenue & Customs’ Real Time Information (RTI) scheme, in the biggest change to the PAYE system (for the deduction of income tax and National Insurance) since it was introduced back in 1944. At present, employers submit an annual year-end return; under RTI, businesses will be required to inform HMRC about deductions as they are made each week or month, as part of their payroll processes. HMRC will tell you when your business needs to make this move. But the legal requirement to use RTI is expected to affect most businesses from April 2013, with all employers be required to submit RTI by October 2013. This doesn’t give you much time to prepare, does it. So, what’s the big rush?
‘HMRC is committed to a smooth and on-time transition,’ says the Cabinet minister David Gauke, exchequer secretary to HM Treasury. ‘RTI will ensure that the PAYE system meets the needs of the 21st century. It will improve the service to taxpayers by making it easier to ensure that people pay the right tax after a change of job,’ he explains, reducing PAYE-generated tax code errors and the time they take to rectify. According to a Budget day note from HMRC on making tax ‘easier, quicker and simpler’ for SMEs, they have told HMRC that RTI will ‘help them to avoid building up debt, reduce the end-of-year pressures, and get their PAYE responsibilities right’. But not all of those affected by the introduction of RTI are this optimistic.
‘RTI may help to streamline HMRC’s systems, but it could wreak havoc for SMEs,’ comments Mike Fleming, a chartered tax adviser and a partner with Straughans Chartered Accountants and Tax Advisers, who also happens to be a former HMRC tax inspector. The Institute of Chartered Accountants in England and Wales has reservations too. These include: the lack of flexibility in the computerised RTI system, the government’s ‘on the hoof’ approach to RTI rules and workarounds, the undue rush towards RTI, and a belief that government estimates of the transitional costs to business are underestimated. ‘RTI will remove administrative burdens of £300m a year from employers, mainly from the abolition of the end-of-year PAYE returns process,’ asserts Gauke.
However, HMRC has already acknowledged (in a Tax Information and Impact Note) that employers’ savings will be offset by the new requirement to submit information each time employees are paid. Providers of HR and payroll services go further. ‘We see the end objective that HMRC is trying to achieve through RTI,’ says Bill Thompson, a principal business consultant at NorthgateArinso who is participating in a working party that is consulting with HMRC to address issues surrounding RTI. ‘We also believe that the mechanism to achieve RTI needs to be right for business,’ he adds, ‘and we anticipate that the short time frames and new processes required to administer RTI are going to be a real headache for businesses, and potentially costly.’
When NorthgateArinso recently surveyed employers, 70% expressed concerns about RTI, with one in ten ‘extremely apprehensive’. Over 60% are worried about the new processes required, while 44.4% are anxious about incurring penalties for innocent mistakes and 29.2% are not convinced that the new RTI processes are sufficiently robust. More than a quarter (26.4%) are confused by the legislation and many are concerned by the pace at which it is being introduced. Nearly two thirds of those surveyed (63.9%) want a phased introduction of RTI over a longer period of time, instead of 100% compliance by next year. But the government is pushing forward with its plans, and HMRC recently launched an RTI pilot.
There are 10 employers in the pilot including HMRC. ‘This will allow us to iron out any wrinkles in a small, controlled environment so that we can ensure RTI is working smoothly as more and more employers join the pilot,’ says Stephen Banyard, acting director general, personal tax, HMRC, and taking part will provide it with experience of RTI from an employer’s perspective. ‘A specialist team of RTI experts will be on hand to support employers through the pilot,’ says Banyard. HMRC expects another 310 volunteer employers and pension providers to join the pilot during May and June, and if this goes well, it hopes that an additional 1,300 volunteers will be reporting RTI by September 2012.
Other employers will have to follow in their footsteps. So how can they prepare? ‘Employers need to get to grips with the new processes required, the potential changes in their payroll system and review their internal processes to ensure they can adapt to these changes,’ suggests Thompson. RTI submissions will use the PAYE information that businesses already send to HMRC, but this payroll data will need checking to ensure that it is correct and in the right format for RTI. Employers with nine or fewer employees will be able to use HMRC's free Basic PAYE Tools, but if you use payroll software or bureau services these will need updating, likewise BACS references. So businesses will need to find our from their providers when the necessary software and services (and the agents that may be using them) will become compliant.
‘Employers should find out when they are due to go live so that they can fully prepare and avoid a chaotic transition,’ suggests Thompson – information that will, at some stage, be provided by HMRC. Though a degree of chaos may be unavoidable in payroll departments over the next year, as RTI is being introduced concurrently with the new national Universal Credit System that the Department for Work & Pensions (DWP) will be introducing in 2013. This has been designed to swiftly process all the necessary information for handling tax credit claims and HMRC believe that employees should notice a visible reduction in tax and/or tax credit payment discrepancies. Time will tell. Meanwhile, you can learn more about the new Universal Credit System from the DWP here and more about RTI from HMRC here.