How Can You Comply With RTI?


Pay taxes messageAmongst the mass of changes I went through yesterday, you may remember me mentioning RTI. Ushered in on April 6th, it’s set to shake up payroll, altering the way many micro businesses do their bookkeeping. So much so in fact, I thought I’d best devote an article to it.

Opinions of it are polarised, HMRC arguing that its introduction will make things easier on the finance front. Some are more sceptical though, the FSB notably worried about its introduction, with recent surveys reflecting RTI ignorance across its members.

What then, is RTI exactly? Who does it apply to? And what can you do to comply?

First things first, what is RTI?

RTI (Real Time Information) is a new scheme by HMRC which aims to modernise how tax and National Insurance Contribution information is submitted. Drastically altering the payroll process, it’s been described as ‘the biggest change in 70 years’.

Who does it apply to?

RTI will only impact upon those operating a PAYE scheme, so if you don’t fit into this bracket, then you needn’t worry about it.

If you’re a freelancer or micro business using a PAYE scheme in any way, shape or form though, then RTI will apply to you.

If this is the first you’ve heard of it don’t panic too much, as thankfully micro businesses have been granted a slight exemption until 5 October 2013, with HMRC granting firms with 50 employees or less a little more time to get compliant.

I operate a PAYE scheme… What do I need to do to comply?

As I’ve alluded to, RTI overhauls the way salary, income tax and National Insurance information is filed with the taxman. In what way? Well, by requiring all PAYE submissions to be made online ‘on or before’ every payday.

In the past this information only had to be submitted annually. Thus the introduction of RTI will mean a twelve-fold increase in submissions for micro businesses paying their staff monthly (and even more for those paying staff fortnightly or weekly).

Concurrently for one man bands running a limited company, you’ll equally need to notify HMRC every time you withdraw a salary.

Ok, how do I do this?

To comply with RTI, you’ll need to submit payroll submissions either through a piece of compliant payroll software or with HMRC’s Basic PAYE tools.

Those using desktop bookkeeping and payroll software will likely be forced to purchase an upgrade from their software vendor, or if they’re particularly unlucky find a new payroll package altogether. Any businesses using online bookkeeping software will have to ensure they are compliant, or else process their RTI payroll through a separate system, or use HMRC’s Basic PAYE Tools to make submissions.

Check with an accountant whether or not your software is up to scratch, otherwise you may receive a stern letter from HMRC…

What if worse comes to worst and I don’t comply?

Aware of the significant burden they’re posing on the Micro Business community, HMRC are being uncharacteristically lax with their penalties, recently stating;

‘There will be no penalties if in-year Full Payment Submissions (FPS) are sent in late, until April 2014. The current penalty process will continue to apply at the year end, with a penalty being charged if the relevant information is not up to date by 19 May.’

From October 2013, they go on to state that they will send letters so that employers understand that they would have been liable to a penalty’. So keep an eye on your post round then.

Automated late penalties will not be unfurled until April 2014, with the current PAYE penalty processes remaining until then. With regards to collecting late payments, HMRC state that they will use real time information to do so.

Notably, they’re being less lenient regarding inaccuracies on Full Payment Submissions, stating that  ‘For the tax year 2013-14, if we discover inaccuracies on FPSs, in-year penalties may apply.’

Adding to this, they state they’ll ‘use the same considerations as now to identify employers for compliance visits. If HMRC discovers inaccuracies as a result of a review, it will use the same criteria as now to decide whether a penalty applies and if so, how much it should be’

Sifting through the HMRC jargon, what they’re essentially saying is ‘get up to speed with all this RTI stuff sooner, rather than later’ so try to get to grips with this RTI malarkey asap. You don’t want a nasty fine later down the line.