PAYE has been with us since 1944, having been originally set up to aid the collection of taxes during the Second World War. However, changes in work patterns and payment patterns — plus the sheer volume of information handled by the system — have left it straining to cope.
PAYE was designed to run on paper, but reconciling all the information by hand used to take months; even the later introduction of computers only managed to reduce the process to weeks rather than months; there were more than a dozen different systems around the country, and they could not automatically cross-check each other. Moreover, as computers took over the processing of the information, tiny errors and inconsistencies that a human would have ignored or amended became a major stumbling block.
Now, HMRC has a single computer system that can process year-end information in just two or three days. However, the system needs information promptly and in a more-consistent format — on a monthly basis!
PAYE is a hugely important part of the UK tax system and the business environment; and while RTI took effect for larger companies in April, all companies must implement it by October. The reasons for this deadline are the overhaul of the benefits system and the introduction by the Department of Work and Pensions (DWP) of the Universal Credit; both require accurate and detailed information about the tax and National Insurance position of every person in the country who is receiving any type of benefit. Universal Credit is due to go live in October 2013, so DWP needs the systems feeding information into it to be up and running by then.
Employer’s obligations
What you as an employer need to do about RTI depends on who runs your payroll. If you use an outside specialist or book-keeper to submit returns, you need to make sure they are up to speed on this matter; you also need to sort out with them who is going to do what and when.
If you do your own payroll, then you will have to provide the appropriate information to HMRC, which has been upgrading the software it supplies free to companies with nine or fewer employees. However, make sure any computer running HMRC’s RTI software is well secured, as the software offers no password protection and you could be subject to action by the Information Commissioner if the data held within that computer is compromised.
Perhaps the most important thing you can do is tidy your payroll data (because the new system is totally computer-driven, it will reject any inconsistent information as being wrong). It is worth bearing in mind that if you regularly get your RTI submissions returned, you are likely to move up HMRC’s ‘at risk’ register for a PAYE visit; and with monthly returns, they will get a much quicker idea of whether you are having problems than under the old annual system.
The new system will want to know how many hours each employee has worked in the pay period. This may not be a problem if everyone is on fixed hours (and paid well above the national minimum wage), but if you have a number of part-time workers on the payroll, you will need to look at how you capture that information and get it into the system.
Penalty-based regime
On the plus side, the year-end forms (P35, P14a and P38A) will no longer be needed, and you will not need to send P45s to HMRC — or to complete a P46. Employees will still need a P60, and expenses and benefits will still need to be reported on a P11D/P11(b). It is worth noting that RTI is a penalty-based regime, although the penalties for late submissions will not be imposed for the first year, to give companies time to get used to the new process; that said, the penalties for incorrect submissions will take effect earlier.
RTI also means that businesses will no longer be able to use HMRC as a source of free credit for ‘smoothing cash-flow’ with a late payment of PAYE. Everyone knows businesses do it (and it is illegal), but with RTI, HMRC will have up-to-date payroll records to check against each month’s PAYE payments. If they don’t tally, you will get a visit from HMRC sooner rather than later.
Further details about RTI can be found at the Web site (http://www.hmrc.gov.uk/payerti/getting-started/index.htm).