Real Time Information

Real Time Information - U-Turn on P45s

Plans to axe Forms P45 as part of the modernisation of PAYE have now been shelved. In this edition of Tax Insight we reflect on why Real Time Information (RTI) is so important to HM Revenue & Customs and the potential issues arising.

What is the issue?

For many years, it has been accepted by HMRC, employers and advisors that significant tax risks can occur within the current process of reporting and paying PAYE and NIC. Under the existing regime, HMRC rely on annual P35 and P14s to retrospectively check whether monthly remittances by employers throughout the previous 13 months have been correct. Similarly, changes to employee data (such as levels of earnings, changes of address and the provision of benefits in kind) are only highlighted at this time which means that HMRC are always working on the basis of older, potentially out of date information.

The Solution

With HMRC having increased its capacity to receive electronic data, RTI will result in HMRC receiving monthly uploads from employers of instant, up to date information, not only in respect of earnings and benefits as mentioned above, but other areas as well.

Forms P45

With employers sending in monthly data to HMRC, it was initially determined that Forms P45 would no longer be necessary and the original proposals suggested that a “Leavers Statement” – essentially the last payslip received by an employee could be used by an individual to provide to a new employer (as HMRC would be automatically notified that the employee had left in any case).

This move caused much concern within professional advisors and employers as payslips do, in the first instance, potentially include much more data than necessary for an employer to operate PAYE correctly. Personal information (and indeed information surrounding the former employer’s business) which the individual and company may not wish to share would be automatically available. In addition, the increase in e-payslips and availability of on-line access after leaving an employment could cause significant issues.

Good news all round?

Not necessarily! It is fair to say that RTI represents the greatest change in PAYE since its inception in 1944 and will represent a significant, additional monthly burden for all employers. HMRC recognise however, that RTI is key to shifting their management of tax compliance from a retrospective to a more up to date, proactive basis and are determined therefore, to ensure the pilot going live from April 2012 goes well. Significant concerns as to whether HMRC’s improving, yet still imperfect IT systems to accept such large volumes of data from employers on a monthly basis when RTI subsequently goes live for all remains and employers will be watching developments over the next twelve months with much interest.

Should you have any queries then please do not hesitate to contact the Cobia team on 0845 226 0580.