What is Real Time Information (RTI)?

most significant change to Pay As You Earn (PAYE) since its introduction just after WW II

from April 2013 employers will receive an invitation to join RTI

will advise the date upon which the employer needs to submit an Employer Alignment Submission (EAS) or their first Full Payment Submission (FPS), to HM Revenue & Customs (HMRC).

EAS will normally be required only where the PAYE scheme has 250 or more employees

There is no change to the way in which tax or national insurance is calculated this is simply a change to the reporting requirements

So what is the current reporting procedure?

employer runs a payroll and produces employee payslips

employer makes payment to the employees

on or before 19th of each month the employer pays tax and NI (concession if deductions are under 1,500)

on or before 19th May each year the employer submits tax year end P14s and P35 returns

So until receipt of the P14s and P35 HMRC has no way of validating that the employer has made correct payments of tax and national insurance during the tax year

New RTI procedure

FPS is to be submitted every time anyone is paid (monthly, weekly, 'ad-hoc')

first FPS must include year to date details for all employees paid during tax year including leavers

even where an employer has sent an EAS first FPS must still include all employees

P14 and P35 not required for the year an employer joins RTI

FPS data submitted about each employee will be used to calculate how much an employer must pay to HMRC for each tax month

HMRC no longer need to wait until the end of the tax year to discover whether or not the employer has paid over the correct amount of tax and national insurance

Starters & Leavers

form P46 no longer required for new starters without a P45

however requirement to ask all new employees a series of starter questions, similar to those on the form P46 including the same P46 statements A, B and C, and student loan question establish the correct tax code and make student loan deductions

in other words, employers will need a new starter questionnaire not to dissimilar to the current P46 see www.hmrc.gov.uk/forms/starterchecklist.pdf

no longer a need to submit a P45 (part 3) or P46 to HMRC as new starter details will be included in the FPS

similarly leaver details will be included on the FPS instead of submitting a form P45 to HMRC however, employers will still be required to give departing employees a form P45

Who should be included in the FPS?

P38A supplementary return not required as employers will include all payments in FPS

i.e. under RTI employers will have to tell HMRC about payments of earnings to all employees, even where an employee earns less than the Lower Earning Limit

under 16s do not need to be included in an FPS unless their earnings exceed the income tax personal allowance see also http://www.hmrc.gov.uk/employers/p31-from-e13.pdf

you should deduct PAYE tax regardless of an employee's age once their earnings exceed their personal allowance

On or Before

employers will be required to submit a FPS 'on or before' payment is made to employees

could be problematic, particularly for employers who do not conform to the regular weekly, fortnightly, or monthly payroll routine

exceptions where reporting 'on or before' will cause difficulties in 'a small number of cases', or for 'notional payments' see www.hmrc.gov.uk/rti/on-or-before.pdf

will include payments which meet all of the following conditions:

made to employees for work done on the day of payment

made non-electronically (e.g. cash or cheque)

made at a time or place where it would be impractical for it to be reported on or before the time of payment

where the employer cannot know how much the payment will be in time to report the information in advance of the payment being made

The Employer Payment Summary (EPS)

where there have been no payments to any employees in a tax month EPS showing 'No payment due as no employees or subcontractors paid in this pay period'

within 14 days following the end of the tax month i.e. 19th of month

for non-submission HMRC will specify an amount due for that month, and pursue payment of same

where the employer has claimed an advance of statutory payments

EPS will include ...

'No Payment for Period' indicator and dates from and to

period of inactivity from and to i.e. notifying a future period of inactivity

value of advance received from HMRC year to date (previously included in P35)

value of SSP, SMP, OSPP, SAP, ASPP, and NIC Compensation on SMP, OSPP, SAP, ASPP year to date

CIS deductions suffered year to date

value withheld under NIC Holiday scheme

So what will not change using RTI?

the way tax and national insurance are calculated

payment dates to HMRC

providing employees with P60s at tax year end

preparing a P11 deductions working sheet

reporting a change to HMRC e.g. updating employee's name or addresses for HMRC records

HMRC Data Provisioning Service (DPS) and EDI outbound message services (employers will still be able to choose how they receive coding notices)

filing monthly returns due under CIS arrangements

FPS will comprise ...

header date including:

HMRC Office Number

Employer PAYE Reference

Accounts Office Reference Number

Tax Year

Self Assessment Unique Taxpayer Reference (UTR) or company tax reference

for each employee:

national insurance number

title, surname or family name, forename or given name

initials, second forename or given name

date of birth

current gender

address and UK postcode and foreign country if not UK

payroll number

irregular employment pattern indicator

pay frequency e.g. 'w1' weekly or 'm1' calendar monthly

payment date, tax week number, tax month number

number of earnings periods covered by payment

aggregated earnings indicator

number of normal hours worked i.e. A up to 15.99 hours, B - 16 to 29.99 hours, C - 30 hours or more, D - other

tax code, week 1 / month 1 indicator

BACS hash code

on strike indicator

unpaid absence indicator

taxable pay in this period

tax deducted or refunded

student loan deduction

pay after statutory deductions

benefits taxed via payroll

employee pension contributions paid under a 'net pay arrangement'

employee pension contributions not paid under a 'net pay arrangement'

deductions from net pay

non tax or national insurance payments

year to date values for above, plus

statutory sick pay

statutory maternity pay

ordinary statutory paternity pay

statutory adoption pay

additional statutory paternity pay, and if there is any additional statutory paternity pay

the partner's national insurance number

partner's surname or family name

partner's forename or given name

and partner's second forename or given name

national insurance category letter

scheme contracted-out number (SCON)

director's national insurance calculation method

week of director's appointment

gross earnings for national insurance this period and year to date

employee contributions payable this period and year to date

employer's contributions payable this pay period and year to date

earnings year to date within each NI band

additional for new starters:

start date

starter declaration statement (A, B, or C)

student loan indicator

passport number

residency information about living in UK or overseas

European Economic Area citizen indicator

EPM6 (Modified) scheme indicator

additional for leavers:

date of leaving

and payment after leaving indicator

additional for last FPS in the tax year:

final submission for year indicator

employer's contracted-out number (ECON)

and responses to the familiar P35 questions such as did you made free of tax payments to any employees?

and some new ones such as is this the last report for this PAYE scheme because it is closing?

In due course the HMRC system will be aligned with that of the benefits agency so that a closer control over benefits payments can be achieved by ensuring that benefits go to those with appropriate qualifying earnings.

RTI & BACS

employers who make payment via the bankers automated clearing system (BACS) under their own Service User Number (SUN) will need to include additional information in the BACS payment file

four character entry in Field 7 (currently spare) consisting of an initial '/' to identify it as an RTI payment, and three random characters (which will be generated by the payroll software)

RTI submission to HMRC will also include a cross-reference (or 'hash') calculated using this Field 7 reference, plus other data from the payment file

when BACS process the payment, they will use it and other information in the payment file to re-create the cross-reference sent to HMRC

HMRC will then match the cross-reference sent from BACS with the information sent by the employer, so it will be possible to match individual payments into employee bank accounts with the payslip value reported under RTI, and more importantly, investigate those which do not.