Major Changes Ahead For Payroll

Payroll Services – Major Changes Ahead For Payroll

If you currently operate, or are thinking of operating a Pay As You Earn (PAYE) scheme, the following highlights the forthcoming changes to PAYE. Please take the time to read and digest the information, as it is the biggest change to PAYE since its inception over 60 years ago.

Real Time Information

H M Revenue & Customs (HMRC) is implementing the Real Time Information (RTI) system for all employers from April 2013.

Under RTI, employers or their agents will send information about Tax, National Insurance Contributions, Student Loans and other deductions each time they pay their employees, as opposed to the current system of running payroll weekly/monthly and submitting P14s and the P35 to HMRC at the end of the tax year.

To ensure compliance, there are some important changes which will need to be made to the way you process your payroll. The following aims to provide you with an outline of the changes to expect, and what to do to prepare and process payroll information on a real time basis.

HMRC Notification

HMRC are planning to stagger the start dates of RTI across employers, with most employers beginning in April 2013. You will receive notification from HMRC regarding your scheme’s RTI start date around February 2013.

Data Quality & Validation

Providing accurate data to HMRC has always been important, and it is to be even more so in future, to ensure the correct amount of Tax and National Insurance is paid by each employee, and to protect their entitlement to benefits and pensions.

The first step in the RTI process is to ensure that the data you hold for all current employees is complete and up to date, as this will be submitted to HMRC for validation against their own database.

In particular, you need to ensure that the following employee details are accurate:-
• Full employee name
• Date of birth
• National Insurance number
• Full postal address

The information HMRC holds on your employees must match your payroll records, so in order to ensure accuracy you may find the following tips helpful:
• Never make up personal information for employees
• Ensure you send full names, not initials or ‘known’ names (e.g. William, not Bill)
• Ensure date of birth is in the correct format (i.e. DD/MM/YYYY)
• Ensure the National Insurance number is in the correct format (2 letters, followed by 6 numbers, then the letter A, B, C or D).

When making the move onto RTI, employers will have to supply HMRC with an extract of records showing all employees employed by the company since the start of the tax year. HMRC will inform you if any of your information does not match that held on their database.

New Employees

Under RTI, employers will not be required to submit forms P45 or forms P46, as this will be reported in real time when the payroll information is submitted to HMRC. A form P46 may still be used to collect employee information and determine the correct tax code, but it will no longer be submitted to HMRC.

This means that employers must acquire all the required information on new starters as soon as possible, before their first pay date. If the information provided fails HMRC validation checks, employers will not be able to process pay for new employees. Therefore, please ensure that correct information for all new and existing employees is obtained and held.

Departing Employees

Under the current system, you are required to submit form P45 for any employee leaving your employment to HMRC.

RTI will remove this requirement, as reporting leavers will form part of the routine payroll information submitted to HMRC. You will still be required to give a form P45 to departing employees.

Casual Employees

Under the current system, employers do not have to maintain a P11 for employers earning under the lower earnings limit (LEL) of £107 per week. However, RTI requires that all payments of earnings to employees are included on the submission, no matter how little they are paid or how short a period they work for.

Payroll Processing

RTI submissions to HMRC must be made on or before the day your employees are paid. You may therefore wish to introduce a system whereby you have an earlier cut-off period after which you will be unable to make any changes for that pay period.

HMRC will also require information on the hours worked per week by staff when submitting the payroll under RTI, to link to certain benefits.

Year End Processing

HMRC currently requires each employer to submit a P35 and P14s at the year end, but RTI will remove this requirement, as information will be submitted each time the payroll is run.

You will still be required to give P60s to your employees, but you will now only have to indicate on you last submission on or before the end of the tax year (5th April) that it is your final submission for the tax year, and complete the declarations as are currently required.

Payments To HMRC

Employers will also be required to submit an Employer Payment Summary to HMRC on a monthly basis, with details of how much PAYE is due for the month. This submission is required before the 19th of each month.

Please bear in mind that under RTI, HMRC will be aware of the amount due on a monthly basis.

Calculating Tax & Benefits

There will be no changes to the way in which tax and benefits are calculated under the new RTI system. A P11d/P9d will still need to be submitted to HMRC each year.

Final Note

If you currently run your own payroll scheme, it is important that you ensure you have adequate software in place to deal with the coming changes to PAYE. Contact your current payroll provider to ensure that your software will be compatible with the changes.

HMRC currently offer their own tools, which will be upgraded to support RTI submissions for employers with 9 or fewer employees. You can find this at www.hmrc.gov.uk/paye/info/payroll-system.htm.

We understand that, with RTI being the biggest change to PAYE since its inception, you may have a lot of questions you require answers to. You may find the following link useful: www.hmrc.gov.uk/rti.

We will keep you up to date on any further developments on the RTI system as and when HMRC announce them.

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