Employers Advisory Group www.croweclarkwhitehill.co.uk Real Time Information (RTI): it will happen to you Ensuring compliance Employers will be required to start submission of RTI from April 2013 onwards. However, what needs to happen between now and then? Using RTI, employers and pension providers will tell HMRC about PAYE payments at the time they are made as part of their payroll process. Payroll software will collect the necessary information and send it to HMRC Online. So, you will submit information about Pay As You Earn (PAYE) payments throughout the year as part of your payroll process, rather than at the end of the year as you do now. RTI only aects the submission of PAYE information the calculation and payment arrangements will remain unchanged. Most employers will be legally required to use RTI from April 2013, with all employers submitting RTI by October 2013. HMRC will tell you when your business needs to make this move. RTI Timetable Employers will be able to join in two ways: by volunteering to be part of the pilot, which is running between April 2012 and March 2013 under direction from HMRC between April 2013 to October 2013. The amended PAYE regulations state that all employers must submit RTI from October 2013 onwards. The period between April 2013 and October 2013 will be phased, however HMRC have stated that all employers must be ready to go at April 2013. When you start, you become a RTI employer, there will be a few non RTI employers nevertheless, these will only be those exempt from communicating with HMRC such as their religious beliefs do not allow them to use the internet or they are care and support employers i.e. an employer who only has domestic or personal services at or from their home. Key points New payroll process. All employers need to be ready by April 2013. New alignment process to ensure HMRC and employers/ pension providers have the same information. Submissions must be made on or before the date of the payment. New penalty provisions from 2013/14. HMRC oer a basic free software but only for those with less than nine employees. What RTI will involve Well let us dispel two myths: it is not about regular submission of P14 s and it is not going to be solved by merely a payroll upgrade. Correct payroll data The key is the correct data. RTI submissions will use the PAYE information you already send to HMRC, plus additional information. It is going to be vital that you hold the correct data on employees, or workers e.g. full name, date of birth and National Insurance Number (NINO) etc. in advance of the first time they are paid. In some sectors this can be hard, so the recruitment processes may need to be changed. Without the key pieces of data, an organisation s whole RTI submission for that pay period might be rejected rather than just the report for the person with the piece of missing data i.e. no one should be paid until it is resolved. You will need to check that your payroll data is correct and in the right format for RTI purposes. For HMRC, this data is crucial and will be passed to their National Insurance and PAYE Service (NPS). The department for Work & Pensions will be collecting this data in order to determine the Universal Credit awards of claimants from October 2013, hence why RTI is being delivered in this way.
payment. Universal Credit is a new welfare benefit in the United Kingdom that will replace six of the main means-tested benefits and tax credits. Universal Credit will be gradually tapered away, like tax credits and Housing Benefit so that people can take even a part-time job and still be allowed to keep most of the credit they receive. In fact, it will be flexible increasing and decreasing each month depending on income changes and it is this part that relies on the feed of RTI data from employers. So, for the first time information provided by employers will impact on the benefits which individuals receive. How to prepare for RTI? Make sure you know what it is and what it means for your organisation Review your Human Resources (HR), Finance and reward and payroll processes including information flow Ensure you can make a full payment submission (FPS) on time whether weekly or monthly Talk to your payroll software provider or bureau Check payment method i.e. BACS or other. HMRC working with employers, payroll bureau and agents HMRC has consulted extensively on RTI and has used this information to improve its design. To make sure the service is thoroughly tested, HMRC is currently piloting the RTI service with volunteer software developers and employers. Around 40 software developers are taking part in the pilot. HMRC will continue to work closely with employers, pension providers, payroll providers and the software and banking industries over the coming months and throughout the pilot exercise to ensure that the move to the RTI system is as smooth as possible. They will also work in partnership with employers to improve (where possible) their employees payroll data quality so that it is in the correct format for RTI, and share any discrepancies they find when entering into RTI and give employees chance to correct these. However, this service may not be possible in the later stages of the transfer into RTI. What happens if your internet connection is slow once RTI is introduced? This should not be an issue, as most file sizes will not be classified as being large for an internet connection. The hash tag will consist of the employer, the employer s sort code and net payment. This will then be converted by algorithm into a value. These are only required from employers who submit directly to BACS or via a bureau i.e. they have a Service User Number (SUN). The following are not in scope for hash matching: cash cheque internet banking CHAPS faster payments. Payroll software If you: use payroll software, it will need updating so that it can process and submit RTI data you may need to discuss this with your software provider do not currently use payroll software, you will need to plan ahead now so that your business will be able to submit data RTI to HMRC electronically when required to do so have nine or fewer employees you can use HMRC s free Basic PAYE Tools. There will be a new version available to download once you are invited to operate PAYE in real time. Until BACS is ready, EDI will be available to larger employers and bureaus to submit RTI data. However, as EDI is not suitable for all, initially the majority of employees will use the internet through the Government Gateway to submit RTI data. You need to ensure a suitable payroll systems (in house or out sourced) that can calculate the payroll and also make the RTI transmissions with all the correct data included. If you use the services of a payroll bureau, bookkeeper and/or agent you should discuss how RTI will aect your business and the changes you need to make to your PAYE processes as soon as possible. Once you begin to operate RTI, if you do not submit your PAYE data to HMRC on time you may incur penalties. Submission channels Until at least 2014, employers and pension providers will be able to use the internet via their own software, (HMRC software, or Electronic Data Interchange (EDI) if they are a large employer,) to submit RTI data. However, HMRC preferred option is BACS. Updating BACSs references If you pay your employees by direct BACSs you will need to include the hash cross references in your RTI submissions (see the HMRC update Guidance on generating the RTI cross reference that will be repeated on your BACS submission ). You should speak to your BACS Approved Solution Supplier or BACS Approved Bureau about this. This will allow HMRC to tie together the payroll record to the
Addressing the essential data quality issues Accurate employee records have always been important. It can save you time and it means that there will be fewer queries from HMRC and from your employees. Over 80% of PAYE data quality issues are caused by incorrect information about an individual s name, date of birth, or NINO. It is important to ensure that the information you receive from your employee is accurate and complete by checking the validity of this information using oicial documentation. Here are some suggested examples of documents you may want to use for validation. Name: Full forename(s) and surnames passport EU identity card birth or marriage certificate full driving licence (photo version). NINO NINO card NINO notification letter documentation from HMRC or Department for Work and Pensions that includes the NINO. Date of birth passport EU identity card birth certificate. Quirky PAYE facts Below are some examples of the errors that HMRC received as part of the 2009/10 employer returns. Employee names 507 A.N Others 128 sta entered as Mr, Ms or Mrs Dummy 572 people whose surnames only included the letter X, ranging from Mr X to Mrs XXXXXX 75 sta with the surname Casual, 11 Cleaners, 9 Workers and 6 Students 824 employees with the surname Unknown, 7 Known and 15 Not known the surname Test also appeared 160 times and do not use 100 times. National Insurance number Over 2,000 with a National Insurance number of AB123456 Nearly 1,000 with a National Insurance number of AA111111. Date of birth 40 employees were apparently over 200 years old. RTI data items HMRC have published a list of around 110 data items they require as part of an RTI return list which are on its internet site, indicating which are mandatory and optional. There are only around 9 or so items that you may not have already had in your payroll or HR system/records at some point. It would be impossible for an employee to have all of the items submitted in one submission. Q: Why is it important to check the details I hold about my employees are accurate? A: It has always been important to make sure the information that you send to HMRC about your employees is accurate. It helps to ensure that your employees pay the correct Income Tax and National Insurance Contributions (NICs). Improving the accuracy of the information you hold and send to HMRC will help match the information to the correct HMRC record. This is not just important for tax and NICs. From October 2013, RTI will support Universal Credit by providing the Department for Work & Pensions with up-to-date information about claimants employment income. Ensuring your employee information is correct will help to ensure employees receive the correct amount of credit. As part of the process for an employer joining RTI, HMRC will align, in most cases, the records of employees held on the National Insurance and PAYE Service (NPS) system and the records held by employers. In the meantime HMRC recommends that you start to prepare for RTI by checking the information you hold. Employer alignment Q: What is employer alignment? A: Employer alignment is an important process that all employers will need to undergo as part of the joining process for RTI. Alignment will ensure the employer and HMRC both hold a consistent view of the employees in every PAYE scheme before reporting using RTI begins. Where an employer operates multiple PAYE schemes, each of these will go through employer alignment separately. Q: What is included on the Employer Alignment Submission (EAS) or the First FPS (Full Payment Submission) for employer alignment? A: It is essential that the EAS or First FPS contains every current year employee even those that have left or have not yet received a payment in the relevant period. Q: Can an employer submit a further EAS with amendments? A: It is essential that the information on the EAS is complete and correct. Only the first EAS submission from an employer will be processed, there will be no facility for an employer to make amendments. If any employees are not included on an EAS, HMRC will consider them to have left.
Q: Why is an EAS needed? Could the employer send in a full FPS instead? A: An EAS is required for large schemes in order to allow HMRC to seperate the alignment processing from the RTI processing. This is to avoid the risk of alignment issues. From April 2013, employers will be able to submit part EAS returns. HMRC will then run each part EAS against the full list of employees held. Full Payment Submission (FPS) Q: What is a FPS? A: An FPS is a new type of submission that will be submitted over the internet via the Government Gateway or for those using it the EDI. Q: What is included in a FPS? A: For the first FPS, employers should include all employees who have been employed during the current tax year, including starters and leavers, or those that have not yet received a payment in the relevant period. Employers can submit this FPS for each part of their payroll, e.g. one first FPS for weekly pay; one for monthly and a separate FPS for leavers. The first FPS should also include the hours normally worked, that is, the number of hours a person is expected or regularly works in a week. Q: How will subsequent FPSs dier from the first FPS? A: The first FPS must show all employees who have been employed with you during the current tax year, even if they have left or have not been paid in this period. The second and subsequent FPSs will only contain pay and deduction details for those employees paid on that payday. You do not need to include employees that are not being paid. Q: Will subsequent FPSs need to include suspended employees (e.g. sabbaticals or on nil pay) or do they run the risk of having employment ceased after three months? A: You must set the irregular payment indicator on the FPS for employees who do not get paid regularly. If an employee is to be paid on an irregular basis, or not paid for a period of three months or more (e.g. takes a leave of absence) you must set the irregular payment indicator on the last FPS before the start of the period in which they will not be paid. This is because HMRC has designed the system to delete anyone where for a period of 13 weeks there has been no data submitted via FPS. The irregular payment indicator should avoid this happening. Q: Why does an FPS include the hours worked? A: The hours worked is required for the purposes of calculating Tax Credit payments. Q: Can I submit multiple FPSs? A: Yes Q: Can I make three weekly RTI submissions on the same day due to payroll sta going on holiday? A: Yes. Each FPS should include the correct payment date for the payment being reported. It must also include accurate year-to-date figure for the time that the payment will be made. Q: We have two pay runs per month which are expense reimbursement. How can we identify that these payments are totally non-taxable and not liable to NIC? A: You do not need to report these expenses payments using RTI if they are totally non-taxable and not liable to NICs. Q: How will I know whether I need to submit an EAS or First FPS to complete Payroll Alignment? A: You will submit an EAS if: you have a large PAYE scheme with over 250 employees your PAYE scheme is split because you have dierent payroll providers, e.g. two or more payroll systems monthly and weekly, if you cannot make a single FPS submission because of bandwidth restrictions. If your PAYE scheme does not fall within the above: you will submit your employee details for payroll alignment when you send your first FPS, although you can submit a separate EAS if you wish. Employer Payment Summary Q: What is an Employer Payment Summary (EPS)? A: An Employer Payment Summary (EPS) is sent if: no payments are made to any employees in a tax month you want to recover statutory payments, NICs compensation on statutory payments, Construction Industry Scheme (CIS) deductions suered (limited companies only) or an amount under the Regional National Insurance Contributions Holiday for New Businesses (NICs Holiday). Q: Do I need to submit an EPS whenever I run my payroll? A: You will only need to submit an EPS where the circumstances detailed in the answer to the question what is an Employer Payment Summary (EPS) apply.
Q: When do I send the EPS? A: If you want the deduction to apply to a specific tax month, you will need to send the EPS by the 19th of the following tax month, e.g. if you wish to inform HMRC that you are recovering some money for the June tax month (6 June to 5 July), the EPS showing these details must be received in HMRC before 19 July. If HMRC does not receive the EPS until 20 July it will apply the reduction to the July tax month. Once you have sent an EPS to HMRC, they can then oset the amounts you want to recover against the payments you are due to make. Q: How will HMRC treat statutory payments shown on an EPS? A: If you have claimed an advance of statutory payments then the amount you report on an EPS will be set-o against the advance you have claimed. If not, then HMRC will deduct the statutory payment on an EPS from the PAYE due, as reported on an FPS. If there is no PAYE due then the credit will be used against any other amount due or if nothing is due you can contact HMRC and claim a repayment or reallocation. Q: What do I have to pay HMRC if I submit an EPS after the 19th of the month? A: HMRC will expect you to pay the full amount due from your FPSs for that tax month. HMRC will apply the EPS deduction to the following tax month. Q: Will the last submission in the year be any dierent to the preceding submission? A: When you send the last submission for the tax year you must: indicate that this is your final submission for the tax year answer the end-of-year declarations and questions. Q: Will I have to make a RTI submission even if I have not paid anyone? A: If no payments are made within a pay period, an EPS should be submitted to indicate that no payment is due as no employees or subcontractors paid in this pay period. Q: I normally pay HMRC quarterly. If no payment is due to HMRC for a particular month in that quarter, what should I submit (if anything)? A: If you are classed as a quarterly payer, you must submit either an FPS or EPS showing that no payments are due this month for every month for which you have no payments due. If you do not, then HMRC will specify an amount due and pursue this at the end of the relevant quarter. Q: Is an employer required to submit RTI returns if they do not currently submit PAYE returns and do not have any employees earning above the Lower Earnings Limit (LEL)? A: If an employer is operating PAYE then using RTI they will have to tell HMRC about payments of earnings to all employees, even where an employee earns less than the LEL. This is a change eective from now, where employers do not have to maintain a P11 if someone earns, e.g. 20 a month. Reporting details of employees earning below LEL is required to: support Universal Credit which will be based on household income help ensure people are paying the right amount of tax on their income. Where an employee earns less than the LEL and the income is not required to be reported under PAYE, the individual will be expected to inform Department for Work & Pensions of their earnings. As part of Universal Credit, Department for Work & Pensions will have alternative processes to collect information about income that is not reported through RTI. Q: What will I need to do when a new employee starts? A: Using RTI employers will be required to ask new employees a series of questions similar to the current P46 questions depending whether the employee has a P45 from their previous job to establish the correct tax code to apply. Where the employee supplies a P45 the employer should use the tax code and previous pay and tax details from that to calculate the tax to be deducted (as they would now). The code from the P45 should be included on the FPS with the answers to the P46. However, the pay and tax from the previous employer should not be included. Please note that employers who are filing RTI should not send forms P45 or P46 to HMRC as the starter and leaver details will be reported to HMRC as part of their normal RTI submissions. Q: How will the system cope with an employee who resigns and is rehired in the same month with two corresponding payslips (two separate contracts)? A: The system will count the two employments as separate by operating on the information submitted by the employer. The last payment from the first employment should have a date of leaving. The first payment from the new employment should include the starting information including start date and should not take into account pay and tax information from the previous contract when calculating the year-to-date figures. If the employer is using payroll IDS they must ensure the second contract is set-up using a dierent payroll ID.
Q: What would happen if an individual had five positions with the same organisation (e.g. a local authority) and ceases four but keeps one of these positions? How should this be reported? HMRC links http://www.hmrc.gov.uk/payerti/index.htm Factsheets for both employers and pension providers A: Assuming the five positions are treated as separate employments and tax and National Insurance are calculated separately for each employment, as each finishes a leaving date should be sent as part of the relevant FPS. HMRC will, if necessary, issue a code each time. Factsheets for employers Factsheets for pension providers Factsheets to help your employees or people receiving pension If the earnings from all five jobs are accumulated and tax and National Insurance are calculated as one employment (i.e. there is one tax code in operation) no additional action needs to be taken until the last employment ceases. Q: I have claimed CIS deductions suered on my EPS, can I have a refund of any excess? A: Yes you can have a refund at the year end and if there are no outstanding debts. Q: What will the new National Insurance Number Verification Request (NVR) do? How can we help? We are helping a number of clients prepare for this major change in payroll and HMRC submissions. We can assist with: Readiness seminars and training Process mapping Project management Payroll processing Walk through testing. A: The NVR will enable you as an employer to: confirm that the National Insurance number the new employee has given to you is correct if it matches to the personal data provided by the employee trace a National Insurance number where the new employee provides personal identity details including full name, address, date of birth and gender. The NVR cannot make a National Insurance number match for an employee under 16 years old or someone who has not yet been allocated a National Insurance number. It will also be unable to confirm a match if the information provided is insuicient and can be matched to more than one unique record. We hope you find this newsletter of interest. If you have any questions about any of the topics covered, please call your regular Crowe Clark Whitehill contact or: London David Daly 020 7842 7364 david.daly@crowecw.co.uk Susan Ball 020 7842 7238 susan.ball@crowecw.co.uk Brian Robson 020 7842 7147 brian.robson@crowecw.co.uk Cheltenham Karen Goodwin 01242 234421 karen.goodwin@crowecw.co.uk Kent Simon Warne 01622 767676 simon.warne@crowecw.co.uk Midlands Paul Edwards 0121 543 1900 paul.edwards@crowecw.co.uk Manchester Steve Livingston 0161 214 7500 steve.livingston@crowecw.co.uk Thames Valley Sue Ashwell 0118 959 7222 sue.ashwell@crowecw.co.uk Stuart Weekes 0118 959 7222 stuart.weekes@crowecw.co.uk Associate member of Crowe Clark Whitehill UK Isle of Man 01624 627335 The oice in the Isle of Man is Crowe Clark Whitehill LLC. It is a separate, independent firm and not part of Crowe Clark Whitehill LLP. Accordingly, neither firm can be held liable for the acts or omissions of the other. Crowe Clark Whitehill LLP is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legal entity. Crowe Clark Whitehill LLP and its ailiates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member. 2012 Crowe Clark Whitehill LLP Crowe Clark Whitehill LLP is registered to carry on audit work by the Institute of Chartered Accountants in England and Wales and is authorised and regulated by the Financial Services Authority.