Employers currently need to submit an end-of-year return to HMRC with details of employee deductions, such as income tax and National Insurance contributions. From April 2013, employers will need to do this every time they pay employees. This is known as Real Time Information (RTI) and is supposed to make the Pay As You Earn (PAYE) process easier.
The reasons for the change, according to HMRC, are to:
- make the PAYE process simpler and less burdensome for employers and HMRC – for example, by removing the need for the end-of-year return (P35 and P14) and simplifying the employee starting and leaving processes
- make PAYE more accurate for individuals, over time reducing the number of bills and repayments sent after the end of the tax year
- enable HMRC to pursue late payments more effectively
- support the payment of Universal Credits
- reduce error and fraud.
Employers will be expected to adopt the new system between April and October 2013, but a small number of early adopters are already running RTI. This number is expected to reach 250,000 by April. Anyone wishing to take up RTI now can do so through their payroll software provider.
By October 2013 paper forms will no longer be accepted and everything needs to be submitted online, whether employers have internet access or not. This may require a commercial software provider, but employers of fewer than 10 staff can use the free HMRC Basic PAYE Tools package.
‘An easy change to make’
For farmers already using an electronic payroll system, the changes should have little effect on their usual practices.
Gill Caine, a bookkeeper on a large family-owned estate who also works in Farmplan customer support, took part in a pilot scheme for the new system. Initially concerned by whether she would be ready in time, Ms Caine found she had all the necessary information for employees in her payroll already.
“In fact, the only minor data change I had to make was inserting someone’s full name where we previously had an initial recorded,” she says. “An easy change to make.
“I would say to anyone who is running a payroll and knows they will be starting on RTI from the next tax year, get on now and learn what it’s all about and start to check you have the correct employee information on your payroll. That way the process will be painless.”
Problems with RTI may start to crop up where employers do not have full details for their staff.
It is estimated more than 80% of data problems are caused by holding incorrect information about an employee’s name, date of birth or National Insurance number, according to Sally Ashwell, Farmplan product coordinator.
Some errors from the 2009-10 tax year include 824 employees with the surname “Unknown”, more than 2,000 employees with an NI number of AB123456 and 40 employees who were more than 200 years old.
These examples highlight how many employers are still not collecting the correct information from their employees, says Ms Ashwell.
“You must have people’s full names – no nicknames and preferably no initials – and correct date of birth and gender, as they might want to check that too,” she says.
“National Insurance number is also important. You used to be able to use a temporary one that was made up of their date of birth, but that was discontinued a few years ago. If for some reason an employee does have an NI temporary number you should leave that field blank and HMRC will automatically trace the correct number based on the other information, which is why address is also important.
“It is not compulsory, because some people do not have one, but they would really like passport number as well when they are trying to trace an NI number.”
The biggest change will be with farmers who employ casual staff for one day – during harvest for example – and pay them cash at the end of the day. With RTI all temporary staff will be required to submit the same information as permanent employees.
However, the changes will make things easier for employers overall, says Ms Caine. “I must say a lot of [payroll queries] would not occur if employers were sending in their information after each pay run rather than leaving everything until the year end and then trying to sort things out.
“In fact, as far as I can see, I think this is a positive step forward. In this day and age, why wait a whole year to gather information when you could have it continually?”
Got a PAYE query?
The Farmplan team will be available to answer your questions about RTI on our forums at www.fwi.co.uk/rti Get your questions to them by 28 September.
To find out more about RTI go to www.hmrc.gov.uk/rti/employerfaqs.htm
- Phased in from April 2013, with all employers using it by October 2013
- 12-month RTI pilot begins from April this year with 300 volunteer employers – three Farmplan customers are part of this pilot
- Prepare for RTI by making sure all employee information is up to date
- P35, P14 and P38A end-of-year reports will no longer be needed, but P60s will remain
- HMRC will contact employers about their start date for RTI to make sure everything is lined up correctly
- RTI will not update HMRC records of employees – HMRC must still be notified of change of details such as name and address
- HMRC is developing a service to enable employers and pension providers to send RTI alongside BACS payment instructions
- HMRC is developing its Basic PAYE Tools free software for small employers, so it is capable of RTI reporting
Payroll workshops are taking place in several locations across the UK, with dates being added all the time. These are mostly for Farmplan customers, but there will be some available to everyone. Booking is essential. To book or for more information call 01594 545 000.
Your questions answered on Real-Time Information