No more hiding! Are you ready for RTI?
Real time information reporting to HMRC is a requirement for the majority of businesses from 6th April.
That's because all employers must provide PAYE information, electronically via HMRC-recognised payroll software before or at the time of payment, writes James Poyser, co-founder of inniAccounts, an online accountancy practice serving contractors and freelancers.
It’s been interesting to be involved in the debates and developments around the preparation for RTI. Even in the first months of 2013, only 5% of our new customers asked us specifically about RTI support and tools in place which is surprising given that the new requirements come into force from this month.
Worryingly, some companies are being misled by articles that misinterpret the guidance from the HMRC. For example, some firms think that RTI won’t apply to them until October 2013. The RTI rules have relaxed, but the relaxation is for companies that pay employees weekly or more frequently. They won't have to report to HMRC at the exact moment a payment is made, but they will still need to report via RTI for each employee at least once per month.
For example, if you pay an employee four times in a month you can send one RTI submission per month to HMRC. However after October you'll need to send one submission for each payment, i.e. four per month.
Let's take a quote from HMRC to prove it:
This is not a withdrawal of the requirement to report PAYE in real time. All employers are still required to operate PAYE in real time and we expect most employers to be reporting PAYE in real time from their first payday on or after 6th April. From 6th October all employers will be required to report PAYE in real time each time they pay their employees.
So it's a partial relaxation, but it won't impact contractors. Worryingly, some contractor accountancy websites are advising clients they don’t need to comply yet.
Why is RTI a positive step forward?
Because HMRC has your PAYE information real time, it will minimise the risk of overpaying or underpaying tax which is a great step forward. Yes, there will be more effort needed when moving over to RTI in the short term, but once in place, there will be less admin both during the year and at year-end. P35, P14 and P38A and ad hoc obligations such as P45 and P46 forms for starters and leavers will no longer be needed.
Ensuring you have the best solution to manage RTI
Small businesses that rely on third parties (such as umbrella companies, accountants or payroll bureaus) possibly have the steepest learning curve. They rely heavily on their payroll provider for support and guidance on how to approach RTI. It’s important to understand the requirements of RTI and the best information is direct from HMRC; after all you are liable for non-compliance. If your accountant gets things wrong on your behalf, you’ll be the one liable and paying any resulting fines. There are helpful resources available at www.hmrc.gov.uk/payerti from guides and fact-sheets to live events and webinars to answer your questions. There are many options to address RTI requirements and the one you use should fit with your business. There are some key questions that you, as a contractor, should be asking your accountant:
- Is the system you offer fully RTI compliant?
- If I don’t want to pay myself annually; can you support monthly/weekly pay?
- Can you support fluctuating pay amounts and salary schedules?
- Or if I prefer, can I just set a monthly salary and let you administer real-time PAYE every month based on the figure?
- Do you provide reminders for actions I need to take as an employer?
- How do the changes affect the fees for administering my PAYE scheme?
The most important thing you need to do is check that the correct information is held for you and every employee. There are four core pieces of information you need to check:
- Name – this needs to be the official name as appears on official documentation such as a birth certificate or passport.
- Date of Birth.
- NI number – there have been cases of husband and wife teams having their NI numbers swapped, so check this carefully.
- Address and postcode.
Remember, you are liable for any incorrect information that results in RTI errors or late reporting - hopefully your accountant has already asked you to check this information, but if not, do so as a matter of urgency.
Some contractors and small businesses are being advised to pay directors annually, taking a ‘salary’ through payment of dividends each month instead. This may be right for you, but it’s important to ensure your PAYE scheme fits your business and not the other way around. RTI should be a positive step forward and if handled correctly, the benefits of reporting and tracking real time will outweigh the initial changeover complications.
With the introduction of the requirements this month, now’s the time to ensure you have a sustainable approach to the reporting requirements and that you have a reliable payroll provider you can trust to administer the system in a compliant way on your behalf. The taxman is offering webinars and events for live Q&As, as linked to above. But remember - if you haven’t done so already - speak to your accountant about the changes as soon as you can.