One of the most frequently asked questions recently is what is RTI and what does it mean to the average employer? This guest post explains more.
What is RTI?
Pay as you earn tax has been an obligatory part of an employer’s responsibility towards state revenues since 1944, when all previous tax rules were unified to make everyone eligible to contribute towards the country’s post-war reconstruction. PAYE is required to be collected on all salary payments, sick pay, maternity pay, and pensions in the United Kingdom, and until very recently, employers just needed to update Her Majesty’s Revenue and Customs annually, at the end of the financial year.
Due to the change in working patterns for many employees – a job for life is a thing of the past, and people can change jobs very swiftly throughout the course of the year, especially if they are self-employed – a new system called Real Time Information or RTI is being introduced. This will enable employers to update PAYE information every time they pay their employees.
The calculations will take into account national insurance contributions, pensions, student loans, and any other deductions that might have an impact on the tax code that the employee is eligible to pay.
RTI is an automated process, that will require employers and pension providers to familiarise themselves with its format so that they can embed it into their own payroll software. The new RTI system is due to become mandatory in October 2013 and compliance is currently being encouraged as some employers have had the opportunity to integrate the process since November 2012, in order to pilot the service in conjunction with volunteer software developers.
The integration of RTI into monthly payroll should avoid having to submit forms P35 and P14 at the end of the financial year, for each employee. Software will need updating so that it can process and submit RTI data, and companies should consult their software providers to ensure compatibility. Those companies who do not currently use payroll software will be encouraged to adopt it over the next few months. Small companies with less than nine employees can find basic PAYE tools online at the HMRC website.
The benefit of RTI for employers is that it will enable swift adjustments on a monthly basis, so if any adjustments are required for Statutory Maternity Pay or errors relating to previous payments, these can be swiftly corrected. For employers, it also means that they avoid penalties for letting late P35 submissions pile up. The important thing for employers is that their database should be up to date – a common issue with PAYE is that information is submitted incorrectly, most commonly employees’ names being listed as “A N Other”, or “XXXXXX”, listed by profession such as “Casual”, “Cleaner”, “Students”, or simply listed as “Unknown”. Other common errors include entering birth dates incorrectly.
The benefit of RTI for employees is that it should avoid shock tax demands due to repeated annual submissions being listed incorrectly. Cumulative errors by HMRC can result in unpleasant surprises for taxpayers, despite the fact that they were unaware of any discrepancy. Employers will now have to pay close attention to correct tax information with every monthly submission. Payment of salaries by Bacs will require employers to include cross references on RTI submissions. There are penalties for late submissions of PAYE data to HMRC. Further information is available from the HMRC website.
Written by James Sheehan, a passionate blogger working in project management & HR software implementation.