By Daniel Hunter
Businesses across the UK are being warned to be ready for the biggest shake-up in payroll procedures for almost 70 years.
From the end of this week, 6 April 2013, most employers will have to tell the taxman every time they make a payment to employees under HM Revenue & Customs’ (HMRC's) new Real Time Information (RTI) system.
For those with fewer than 50 employees, filing just once a month under the RTI system will be acceptable for the first six months of RTI — not really real time, but nearly real time, ie until 5 October 2013 when they will then have to report in line with everyone else.
For those with over 5,000 employees, HMRC is giving personalised 'landing slots' to bring them into the system gradually.
The target is to have all employers filing in RTI by 6 October 2013 — the date on which universal credit, the new benefit system, will start.
Some aspects of the current system, such as deadlines for paying tax to HMRC, P45 forms for leavers, P11D forms for benefits, and the rules for calculating tax and National Insurance contributions (NIC), will remain the same. However, under RTI, employers will now have to provide more information about employees, and for the first time, employees who fall below the lower earnings limit for NIC will have to be included on every report.
“RTI is a fundamental change to the way employers interact with HMRC and marks the biggest change to the way the PAYE system operates since it was set up in 1944," Ellie Gamble, employment tax associate director at Grant Thornton UK LLP, commented.
“From April, and subject to the small relaxation for those with fewer than 50 people, every time you make a payment to an employee, you will have to tell HMRC on or before the payment is made. Employers with fewer than 50 staff need to realise that the relaxation announced last week doesn't mean that they will not be in RTI as of 6 April — they will — but they will only need to report monthly for that first six months, rather than on each occasion they make a payment to an employee. So for those employers in that group, who only pay monthly anyway, this makes no difference at all.
“Business owners need to bear in mind that their operation and payment of PAYE is about to become more transparent to HMRC, so it's important that they ask themselves if they are doing everything right.
“Clearly this change is going to be onerous and could put real pressure on payroll teams. The message to businesses is clear: do not rely on your software provider to make this work.
“There will be penalties under RTI for late or incorrect returns, although HMRC has confirmed that it won't impose penalties for late returns for the first year of RTI. However, it has reserved the right to look for penalties on incorrect returns from the outset.
"The intention of RTI is to improve the 'customer experience' for businesses and employees as well as simplifying the current process by reducing the need for year-end reconciliations.
“However I believe the other two reasons for the change that have been given by HMRC carry more weight. One is that this is being done to mesh with the Government’s planned introduction of universal credits in October this year, which aims to streamline the benefits system, and more particularly, it will let HMRC know what PAYE to expect on a payday by payday basis, so it will be able to collect the correct amount more quickly."
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