Contractors' Questions: Will RTI affect umbrella company contractors?
Contractor’s Question: I’ve read what the taxman’s incoming system of Real Time Information means for limited company contractors, but how will RTI affect contractors who operate through an umbrella company?
Expert’s Answer: As of April next year, HM Revenue & Customs will start to require all employers to use RTI as the department looks to ensure all employees pay the right amount of Income Tax and National Insurance every tax year.
This means that all companies that run a PAYE scheme will be affected by RTI. This includes umbrella companies, as well as PSCs. From April 2013, these companies will have to report to HMRC each time a contractor is paid a salary.
For us, one of the biggest challenges was a ‘data cleanse project’ to ensure that all of our contractors, paid in the 2012/13 tax year, had correct personal details in the required HMRC format. Our payroll and reporting systems had to be tailored to capture the additional fields for RTI that were not required under the year-end processes.
We also had to ensure that our reporting and submissions supported the added complications related to irregular payments such as multiple payments made in the same pay period and bulk payments covering multi-pay periods, all of which have to be declared in the RTI submission.
Remember that under the RTI system, it is the umbrella company’s responsibility to provide the information to HMRC. So if you are an umbrella worker there is probably nothing you will need to do. RTI does not change the PAYE rules so the amount of tax you pay will remain the same.
The only difference is that, owing to HMRC having your full year employment history, you should never pay too much tax again!
The expert was Julian Ball, legal director at PayStream.
Editor's Note: Further Reading - No more hiding! Are you ready for RTI?