What does "Real Time Information" mean for employers?

Real Time Information (RTI) for PAYE is coming sooner than many expect. In this edition of Tax Insight we consider what impact RTI will have on employers and what businesses should be considering.

What is RTI?

Employers currently send information about tax, National Insurance contributions (NICs) and other payroll deductions to HM Revenue & Customs (HMRC) by the 19th May following the end of each tax year. This process often results in errors being left undetected for many months as HMRC do not become aware of mistakes in employees’ tax codes for example, until after the tax year has lapsed.

Through RTI in the future, employers will inform HMRC on-line about tax, NICs and other deductions when or before the payments are made, in other words providing information to HMRC in “Real Time”.

When does RTI begin?

Employers must use the RTI service from April 2013. To make sure that the service is thoroughly tested and issues resolved before April 2013, HMRC will pilot the RTI service, with volunteer software developers and employers for a year, starting in April 2012.

How will employers send RTI?

There will initially be two methods of reporting – either online, via the Government Gateway, or using Electronic Data Interchange (EDI).

In addition to this, HMRC has announced it is seeking to develop a service which will enable RTI reporting through BACS. This would enable employers who pay their employees through BACS to report RTI automatically at the time electronic payments are made to their employees.

How are employers expected to cope with RTI?

As you would anticipate, HMRC have announced that RTI is “good news” for employers and will reduce the overall administrative burden but many have deep concerns regarding the Government Gateway’s ability to deal with thousands more regular users and external systems seeking to upload timely information.

Conclusions

Whilst RTI is still on the “to do” list for consideration next year, some employers will be going live in 9 months time. But is it all doom and gloom? Well removing the need for the end of year return (P35 and P14) and simplifying the employee starting and leaving processes will be welcome news for most employers. Furthermore, it should be easier for HMRC to identify employees on incorrect tax codes, thus reducing the chances of potentially high tax liabilities accruing without the employee’s knowledge and any system which provides up to date, financial information in respect of Universal Credits is also equally welcomed.

As always however, the proof will be in the technology and this is where many employers are more concerned. The existing on-line options are temperamental at best during “peak periods” and with the high volume of date which will subsequently be sent to HMRC on a weekly or monthly basis, many will be watching to see whether HMRC’s systems can cope and whether their staff will subsequently deal with RTI information accurately and fairly.

Should you have any queries regarding how RTI will impact your business, then please do not hesitate to contact the Cobia team on 0845 226 0580.