This is a new HMRC Online system that will be introduced from April 2013. It will require employers to file their payroll details with HMRC every month/week before they are able to pay their staff. This means employers will no longer be able to give cash advances to staff which then later deduct from their wages.
Currently employers only file a summary of this information once a year which has led to issues in recent years with individuals under or overpaying taxes due to incorrect tax codes. This new system will mean that the information held by HMRC should be up to date and hold accurate details of an individual’s earnings at any point during the year.
HMRC claims that RTI will:
Payments and penalties
Under the current system of annual filing HMRC are unable to tell if employers are paying the correct amounts of PAYE & National Insurance contributions throughout the year however the new monthly reporting system will enable them to check this.
The penalty system was updated in 2010 in anticipation of the new RTI service and penalties will be imposed based on the number payment defaults on a percentage basis. The percentage penalties range from 1% for 2 to 4 defaults in the year to 4% for 10 or more. Employers paying 6 months late will incur a penalty of 5% with a further 5% charged if the payment is 12 months late. HMRC have said that they will issue warning letters for first and second defaults before penalties are issued so that employers are aware of the risk of incurring penalties.
Payroll software will need to be updated so that it can pass the information to HMRC. All payroll software developers will have accounted for this but you need to make sure you have got the necessary update. If you are not using payroll software you will need to use this going forward, however there is some free software provided by HMRC called Basic PAYE tools that is available for small employers.
There will be a payroll alignment process before each employer goes onto the RTI system so it is important to make sure you hold all the necessary employees details beforehand (name, address, National Insurance number and date of birth).
Owner managed businesses
We had been hoping there would be an exemption for owner manage businesses who currently only file an annual payroll return as they are paid below the limits for Income tax and National Insurance. As the deadline is fast approaching and nothing has been announced we have to assume that these businesses will now have to file a monthly payroll return under the new system. This is a big increase in form filling for small businesses when the government had pledged to reduce red tape for businesses.
You may find this HMRC checklist useful http://www.hmrc.gov.uk/payerti/getting-started/business-readiness-checklist.pdf
HMRC has issued around 850,000 late filing penalties for the tax year ended 5th april 2012 which was due by the 31st January 2013. Remember the penalties apply regardless of whether there is a tax liability or not, the cap of earlier years has been scrapped.
Licenced Accountant in Brighton