31st March 2013
PAYE Changes and what they really mean… Plus some funny things that have been received at HMRC!
The Pay As You Earn (PAYE) system was introduced in 1944 and has changed very little since then, so these changes are relatively big news and are aimed at improving the efficiency of PAYE, using Real Time Information (RTI).
RTI is the new system for reporting payroll information, which requires employers and pension providers to provide detailed information to HMRC on an on-going monthly basis rather than through the year end return. So basically, the employer will submit information including details of earnings and the tax and NIC deducted whenever a payment is made to an employee.
One of the benefits behind this is more efficient administration of the Government’s Universal Tax Credit, which means that tax credits won’t be grossly over or underpaid as the information held by HMRC will be more up to date.
A pilot of the RTI scheme started in April 2012, to test the system and resolve any problems before full implementation between April and October 2013, by which time all businesses will be operating under the scheme.
What it means for businesses:
RTI will make the monitoring of PAYE much easier for HMRC as the information will be up to date and accurate. This will allow HMRC to more promptly identify and investigate businesses that have underpaid PAYE during the year.
Here’s a checklist of things to be aware of for your business:
1. Employee data must be accurate
All employee data will need to be verified against HMRC databases and employers will be notified by HMRC about when and how this should be carried out. But the importance of accuracy in reporting the information cannot be emphasised enough!
So far, HMRC have received 507 AN Others, 128 people called Mr or Mrs Dummy and 160 Mr and Mrs Test! Don’t be the one sending this information!
2. Record keeping & admin changes
Employers will need to file the full pay, tax and national insurance information of their employees to HMRC before the employees have been paid each month. So the submission of year end forms (P14s) will be abolished as RTI effectively supplies the information on a month by month basis.
Employers will still need to produce and keep P45s for leavers but from 6th April (for those Companies joining RTI in April) form P46 for starters can be replaced with in-house forms, provided the Declarations A, B C & D on the P46 form are included and the employee completes them and signs the form. Nicki, do people need to know this, or can you just sort this out for them?! It sounds rather laborious and stops the text from flowing…
The delays waiting for P45s from previous employers should now be a thing of the past, as the data should now – according to HMRC – be automatically downloaded.
3. End of year reporting
As an employer, you will need to notify HMRC of the final payroll submission of the tax year, so this will need to form part of the year end procedure. There is also the option to complete an employer’s declaration – one sheet instead of the 3+ taken by the P35. Additionally, P60s will still need to be provided annually to each employee and form P11D (employee benefits and expenses) will also continue to be reported separately from the RTI.
However, whilst the transition to RTI means a reduction in year-end admin, the downside is that all returns must be submitted to HMRC by 19th April rather than 19th May as with the old system.
So what next?
HMRC will be contacting employers over the next few weeks to start implementing RTI from April 2013, but it is clear that many businesses are still not prepared for the changes and the short deadline for implementation is a major concern for businesses which operate their own payroll and may not fully understand the changes.
If you’re uncertain about how this will impact your business, or even what to do, I’m happy to talk you through it, or even take the pain away for you! Just contact me for more information.