West businesses are being warned to prepare for the biggest shake-up in payroll procedures for almost 70 years. From April, all but the largest companies will have to tell the taxman every time they make a payment to employees under HM Revenue and Customs’ (HMRC) new Real Time Information (RTI) system.
Currently, records only need to be submitted to HMRC at the end of each tax year.
RTI goes live next April for all except the largest businesses, which will be brought into the scheme by October 2013.
Some aspects of the current system, such as payment dates and the P45 and P11D forms, and the rules for calculating tax and National Insurance, 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 will have to be included on every report.
Accountants Grant Thornton’s Bristol employment tax senior manager Tom Smith describes RTI as the most significant reform of the PAYE system since it was introduced in 1944.
“Real Time Information is a fundamental change to the way employers interact with HM Revenue and Customs,” he told attendees at a recent meeting of the firm’s FD Club
“From April 2013, every time you make a payment to an employee, you will have to make a report to HMRC on or before the payment is made. If, like most businesses, you pay your staff monthly, that is 12 submissions to make a year as opposed to just one – or 52 a year, if you pay people weekly.
“Business owners need to bear in mind that their operation and payment of PAYE is about to become more transparent to HMRC, so they need to 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 – be prepared or prepare to be penalised.
“There will be penalties under RTI for late or incorrect returns, although we are not yet sure what these will look like, and HMRC promise a ‘soft landing’ on penalties to give employers the chance to become familiar with the requirements of RTI.”
Mr Smith said HMRC states that RTI will 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 which have been given by HMRC may carry more weight. One is that this is being done to mesh with the Government’s planned introduction of Universal Credits in October 2013, which aims to streamline the benefits system, and more particularly, that it will reduce HMRC’s ‘in year’ PAYE debt of around £4bn.”