The Pay As You Earn (PAYE) system of reporting payroll has changed very little since it was introduced in 1944. But with the introduction of RTI, which HMRC introduced last year to improve the operation of PAYE, businesses must be prepared to adapt.
RTI requires employers to start providing employee PAYE, national insurance and student loan information to HMRC at point of payment every month, rather than just at year-end. Not only will this support the wider introduction of universal credits, it aims to fundamentally improve the overall operation of PAYE.
By increasing the regularity of reporting, it enables HMRC to respond more efficiently to errors that lead to the under- or over-payment of tax, and should ultimately serve to minimise the administrative burden of payroll year-end.
RTI was introduced to the majority of businesses in April 2013, with the exemption of some small businesses which were delayed until October 2013. However, now all businesses must submit their RTI or be faced with fines from HMRC for lack of compliance in October 2014. Many businesses are unaware of this change to legislation, and confusion still surrounds the issue.
With an increase in business confidence and a positive outlook for the economy, the last thing that the UK’s small businesses need are unwanted and unneeded fines.
Neilson Watts, product manager at Sage One Payroll, believes knowledge and the means are key for RTI, and businesses must involve their payroll provider now to avoid any costly fines.
“As we approach the new tax year, 93% of businesses have already adapted their payroll processes to ensure compliance with RTI by submitting electronically to HMRC every time they make a payment to their employees,” he says.
“However there are still thousands of business who are either a choosing not to submit, are simply unaware, or misinterpreting the RTI relaxation HMRC implemented for micro businesses until April 2016.
“Sage really wants to help small businesses understand they should not ignore or become complacent about RTI, but that businesses should be submitting RTI returns to HMRC now. From October 2014, HMRC will start to fine businesses a minimum of £100 for each month you fail to submit or submit late, as well as incurring late payment penalties where you fail to pay HMRC what you owe them in PAYE and NIC.”
Businesses that currently do not submit RTI need to quickly get their payroll in order, and there are certain things that businesses can do to soften the impact of the changes.
The success of RTI for HMRC hinges primarily on the accuracy of the data that employers store about their employees, and therefore it is vitally important for businesses to employ these few simple steps to cleanse their data.
1) Find out what the legislative changes will mean to your processes
Do this by speaking to your payroll software provider. This will ensure you continue to pay your employees and HMRC on time, whilst also fulfilling the legislative requirements of submitting more frequently to HMRC
2) Carry out a full data cleanse on your system
Work with your employees to make sure all your data is correct. According to HMRC, THE 2009/10 employer returns showed there are 128 employees called Mr, Ms or Miss Dummy, 572 employees whose surnames ranged from “X” to “XXXXX”, 507 A N Others, 160 Tests, 100 Do Not Use, 75 staff called Casual, 11 Cleaners, nine Workers, six Students and 824 Unknown.
Ensure all the information you have is up to date and that the correct names, date of birth and national insurance numbers for all of your staff are recorded. If the records you submit do not match those at HMRC, you may trigger the creation of duplicate or inaccurate records which could result in incorrect tax calculations or HMRC compliance checks
3) Communicate with your employees about how important the information they provide the employer is
This will ensure the accuracy of their payroll, so they are educated on the implications of providing inaccurate information
4) Store all your business information securely
This will allow you to react quickly to any requests, demands or legislative issues that arise. Use HMRC recognised payroll software to reduce the burden on doing payroll manually every month; this will help automate processes, mitigate errors and give you peace of mind that you are fully compliant
5) Make the most of customer service
Some software has dedicated help desks for you to contact. Use this facility to check with them that you have all the data you need for your RTI submissions, and remember that all responsibility for paying employees correctly, and in line with RTI, rests with the employer.