18.1 What is RTI?
Payroll
duties are presently done in a computerised manner, via an online connection
and via highly skilled payroll system software, which you must select with
careful consideration.
This may all sound very complicated, but the reality is that provided you keep
records up to date and you know how to send the information at the correct
time, the task is not that difficult at all; whether you choose to do your
payroll duties yourself or to outsource them to an accountant or bookkeeper.
It is imperative to know that regardless of
whoever actually does the full payment submission to HMRC via your payroll
software, it is the employer's responsibility ultimately. If you outsource your
payroll duties it is still your responsibility to ensure PAYE (Pay As You Earn)
is reported accurately and in a timely manner. Failure to do this comes with
very severe consequences.
HMRC
are always looking for ways to simplify and update the way employers report
deductions and changes to employee wages and circumstances. In 2006, HMRC
started a new business transformation method that
made for a more effective and efficient PAYE for employers as well as
employees. The technology helps employers pay the right tax at the right time.
It
achieves this by:
- -Providing a single record for
all taxes paid and due for a single individual - this record stays
constant even when you switch jobs - -Increasing automation and thereby improving the accuracy of tax
information - -Increasing the speed of communication between taxpayers and HMRC
- -Reducing contact levels, making it easier to resolve issues
Real
Time Information (RTI) was the next step forward and has revolutionised PAYE by
improving speed, accuracy and efficiency. Employer information is fully
integrated with payroll software to reduce end-of-the-year bottleneck, and
April and May (the two busiest months with regard to tax) will be no different
to the rest of the year.
RTI
not only helps employers pay taxes more effectively but also helps them avoid
the build-up of debt. It is also designed to eliminate transcription errors and
avoid duplication of information. All the information flows in through payroll
channels and RTI is expected to save money for UK-based employers.
In
this module, we will explore exactly what RTI is, how it works hand-in-hand
with the PAYE system, what it means, and how to use it.
What exactly is RTI?
RTI
stands for Real Time Information. RTI allows employers to send important
payroll information to HMRC in real time, i.e. at the time an employee is paid
(weekly or monthly). This was designed to cut down on time lapses between
information occurring and information being communicated, resulting in less
chance of a tax code anomaly or mistakes, and everyone knowing exactly where
they are at any given time.
HMRC
introduced RTI in order to simplify the whole process of payroll reporting, by
linking together RTI, PAYE and HMRC's own internal computer systems; this forms
one big circle of information which covers all bases for the employee, the
employer and HMRC too.
When
employers send information to HMRC via the PAYE system, using the online
government web gateway with dedicated log-in details, this information is then
automatically checked by HMRC before being passed to a database. This sorts and
distributes information pertaining to payroll, meaning the correct information
ends up in the right place.
What RTI means for
employers:
-Under RTI, employers are
required to have a working internet connection and RTI-enabled software.
-Businesses with less than 10
employees are allowed to use free RTI software.
- -End-of-year forms such as P35 and P14 will no longer be filed
with HMRC. - -Under the RTI scheme, employers are required to submit an EPS
(Employment Payment Summary) when they make a statutory payment to HMRC
(sick pay, for example). You may also be required to submit an EPS if you
have not paid anyone. - -It is no longer compulsory for employers to use BACS (Bankers
Automated Clearing Services) for HMRC payments.
-After April 6, 2019, employers no longer have to use EYUs
(Earlier Year Updates) to correct errors. Mistakes can now be corrected by
submitting an additional FPS and earlier information is automatically
overwritten.
In the days before RTI, employers used to send payroll
information to HMRC much less frequently, often once per year at the end of the
tax year; however, now this information is submitted on or before the day an
employer pays their employees. If you can put together your software choice
with the ability to create a wage slip at the same time, you can basically tick
all your payroll boxes in one easy submission.
This is why picking the correct software for you is so important
in terms of cost, ease of use, and to ensure the correct functions are bundled
into your one choice. We will discuss software choices in a little more detail
shortly; however, for now, this knowledge will lead you through this module.
18.2 RTI and PAYE - How Do They Work Hand in Hand?
It is important to know the difference between RTI and
PAYE, because both are separate entities, although they certainly work together
in sync in order to provide a hopefully faultless process.
When HMRC brought PAYE and RTI into force the aim was to provide
a simpler, seamless process overall for both employers and HMRC themselves. Of
course, the employee also certainly benefits from having deductions taken from
gross pay at the time of actually being paid, rather than receiving a bill at
the end of the tax year!
RTI
is Real Time Information - which means information is reported to HMRC at the
time of paying employees, rather than once per year as was previously the case.
This means that HMRC is aware of what is happening at any given
time. This, therefore, cuts down on errors and reduces the chances of a tax
code problem, such as an employee being put onto a costly emergency tax code
because of insufficient for a short period of time. In our previous modules, we
have explored the importance of tax codes in ensuring that an employee is
paying the correct amount of tax from their wages, as part of their statutory
deductions.
If an employee pays an incorrect amount of tax this then needs
to be put right, either by collecting back the amount underpaid or giving a
refund of the tax overpaid. This is costly and time-consuming for all parties
and RTI aims to cut down on the instances in which this happens, whilst also
affording everyone who needs it access to the correct information, in order to
answer queries and questions.
On the other hand, we have PAYE. Again, we have dedicated a full module
previously to PAYE, but as a quick reminder, PAYE stands for Pay As You Earn,
meaning that employees pay their income tax and National Insurance
Contributions (NICs) every time they earn a wage, either weekly or monthly, and
this is automatically deducted from their wages and sent to HMRC by the
employer through their full payment submission.
The employee is aware of how much tax and
National Insurance has been deducted from their gross pay (the total amount
earned before deductions) by receiving a wage slip every time they are paid a
wage. Whilst deductions are taken before the employee even knows about it, they
are told what has been taken from their wages, and these deductions can only
ever be statutory, i.e. tax, National Insurance, and student loan repayments,
or voluntary, such as pensions or healthcare schemes, for example.
Payroll software works hand-in-hand with both entities, so we
have PAYE, which is the scheme allowing deductions to be made every time an
employee is paid, and RTI, which is the process of reporting these deductions
in real time. As you can see, the two run together harmoniously and side by
side but are slightly different in their make-up.
Fact
Estimates
for October 2023 indicate that the number of payrolled employees rose by 1.3%
compared with October 2022, a rise of 398,000 employees.
Source:
ons.gov.uk
18.3
How to Report Payroll Information in RTI
Whoever
undertakes payroll duties within your company is the person who does the RTI,
and probably without even realising it.
Why?
Because this is now the norm, and if you did not
work with payroll before RTI came into effect you will not know about the less
frequent nature of reporting information to HMRC.
If you outsource your payroll duties to an accountant or
bookkeeper, then this is the person who will report RTI to HMRC through PAYE.
If you do this yourself, then it is you. RTI is done through your payroll
software and it is for this reason that you should always use software which is
HMRC recommended. You can find an up-to-date list of software which HMRC have
tested out and recommend on their website, to help inform your decision.
The major difference
between the way payroll used to be run and the way it is run now, is simply
that you send information to HMRC much more frequently than before. You simply
ensure that your employee payroll records are up to date on your software and
technology does the rest for you.
Deductions are calculated and made automatically and your full
payment submission to HMRC is done every time you pay your employees, be that
weekly or monthly. The emphasis on 'real time' means that HMRC knows what is
happening with your employees every time you pay them, rather than once a year
when sending bulk information. As with anything that involves large amounts of
numbers and data, errors can easily be made, which is why RTI was brought into
effect.
18.4 What to Do if Outsourcing Your
Payroll Duties to an Accountant or Bookkeeper
You
need to ensure that you keep your outsourced individual up to date with any
changes in circumstances relating to your employees.
This
means that you need to choose your accountant or bookkeeper wisely, in terms of
the software they use. Any professional outsourced payroll operator will have
top-class software, which is certainly going to be HMRC recommended. Check this
out at the time of hiring your particular individual and you should have no
problems.
Communication
is perhaps the only stumbling block when it comes to using an outsourced
individual for your payroll duties, but if you can ensure regular catch-ups and
a failsafe system for reporting changes and anomalies, then you should easily
be able to make this particular arrangement work well.
Your
accountant or bookkeeper will therefore be responsible for reporting your full
payment submission to HMRC via the RTI computerised system, however, as with
anything related to PAYE, no matter who actually does the payroll duties, you
are the one who is ultimately responsible for ensuring the information is
submitted at the correct time, as the employer; the culpability lays with you,
in the eyes of HMRC.
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