Now that Real Time Information (RTI) has arrived, let us look at the changes required in your working practices. These can be divided into two main categories – timing and records.
The basic change is that a report of gross pay and deductions must be made to the tax office when or before any payment subject to PAYE is made. This compares to the current system where a report is made after the end of the tax year. The report relating to the tax year ending on 5th April 2013 must be submitted before 19th May 2013, and this is the first time that a detailed report of payments made in that year is submitted to the tax office. However, under RTI this information must be made before any relevant payment is made, and this applies equally to payments made to a director/shareholder by their own company. This apparently simple change has some enormous implications.
I currently calculate my payroll manually. Is this acceptable under RTI?
Yes, of course it is, RTI does not stop you from keeping your payroll manually. However, all returns to the tax office from April 2013 must be made electronically. By now, all software suppliers should have issued updates enabling the returns to be submitted over the internet. For employers with fewer than 10 employees there is a free download available from the tax office which will enable you to make your submissions. However, if you are unhappy at using the free software provided by the tax office, or have more than 9 employees, then you will need to make alternative arrangements.
I have 10 or more employees, or I am not comfortable using the tax offices free download. What alternatives are available to me?
If you have more than 9 employers then you will either need to invest in a commercial software product or appoint a payroll agent to produce a payroll on your behalf. There are some free payroll products available on the internet, or you may decide to invest in a product such as Sage Payroll, or you could appoint a payroll bureau. Before making a decision on which way to go, then you should consider a number of factors:
- If you decide to use a free or inexpensive product, then what are the annual maintenance costs? If there are no charges made for these then you should carefully consider the financial viability of the software supplier. Will they still be there next week, let alone next year.
- If you are considering a “mainline” product such as Sage then, whilst the financial viability of the software provider may not be in doubt, you should consider not only the initial cost of the licence but also the cost of the annual maintenance contract.
- In both cases you should also consider how long it will take you to prepare these records.
- Alternatively, you could appoint a payroll bureau such as ourselves. In many cases this may be the least expensive option!
Our payroll department is fully prepared for RTI. We can frequently prepare your payroll for an annual fee lower than the annual maintenance fees charged by a software provider to keep their commercial payroll program fully compliant with current legislation.
When do I need to submit the RTI report to the tax office?
An RTI report must be made on or before the date of payment. For instance:
- You pay your employees weekly up to each Friday and run your payroll to that date. Employees are paid on the following Thursday. The RTI report needs to be submitted weekly on or before the Thursday payment.
- As above, but someone has left and they are paid early on the actual Friday of the payroll run. The RTI report for that person must be submitted on the Friday of the payroll run.
- You pay your employees monthly and run your payroll up to the end of the month. Employees are paid on the last day of the month. The RTI report must be submitted by the last day of the month.
- As above but as it is December you pay your employees early on 24th December. The RTI report must be submitted by 24th December.
I operate through a Limited Company. Currently, I just transfer an amount from the company bank account to my personal account as and when required. I then leave it up to my accountant to decide how this should be accounted for. Is this acceptable under RTI?
No, most certainly not. The requirement to report any payments subject to PAYE to the tax office before they are made means, in our view, that your records should clearly distinguish between transfers subject to PAYE and other transfers, such as expenses, dividends and director loan repayments. Otherwise, we feel that your returns will be subject to challenge. The nature of all transfers must be accurately recorded at the time of payment to resist any challenge from the tax office.
I operate through a Limited Company. Sometimes I may use the company bank account to pay a personal expense, and leave it up to my accountant to decide how this should be accounted for. Is this acceptable under RTI?
No. It is difficult to justify this at present in some cases. RTI will certainly strengthen the tax offices hand if they decide to challenge these payments. Tax law states that if an employer meets any “pecuniary liability” of an employee, then the payment is subject to PAYE, and should therefore be reported to the tax office under RTI. It is important that, if any challenge is to be successfully resisted, the nature of the payment is properly recorded when it is made.
I operate through a Limited Company. I do not have a company bank account but operate through an account in my own name. Is this acceptable under RTI?
Absolutely not! This is most inadvisable under the previous system. Under RTI, this will almost certainly place the company in a penalty position.
You run my payroll for me. Surely you will look after all this for me?
This comment has been made to us on a few occasions over the last few months. It does not need to be said that we will ensure that all payments subject to PAYE, and of which we are aware, are dealt with correctly and that all returns are made. Also, we will always advise clients on their liability to both PAYE and RTI. However, it remains your responsibility to ensure that you fully understand the nature of all payments, and that the payments are correctly recorded in your records.
I am a “one-man” limited company. Can I avoid registering for PAYE, and therefore RTI, by paying myself below the PAYE/NIC reporting requirement, normally the NIC Lower Earnings Limit?
Subject to any anti-avoidance legislation, and provided adequate records are maintained to support the nature of any payments, then this is a possible solution. However, to avoid a gap in your contribution record for pension purposes then you will need to pay voluntary contributions amounting to more than three times the amount that we would charge to run a monthly payroll.
No-one in my employment earns above the Lower Earnings Limit nor do they earn enough to pay tax. Currently I do not operate a payroll. Will I need to register under RTI.
No. If you did not need to register under the old system then nothing in the new RTI regulations will require you to register. However, you must be aware of the regulations when taking on any new staff. Unless you are given a current year P45, then you must obtain a signed P46 with the employee confirming that they do not have any other earnings or pensions, otherwise you will be required to deduct tax from their earnings even if those earnings are below the Lower Earnings Limit.
I understand that the tax office will not enforce RTI penalties immediately. Does this mean that I can ignore it at present?
No. The purpose of the various relaxations is to give employers the opportunity to get use to the new system. This opportunity should be used to ensure that your records are adequate and must not be wasted.
So I think that I may be required to make returns under RTI. What must I do next?
You should ensure that:
- You are able to make your RTI returns on-line and on-time
- You fully understand which payments are subject to PAYE and, therefore, RTI
- Your working practices ensure that payments subject to PAYE are kept distinct from other payments
- Your records clearly show that distinction
What can I expect if I do nothing?
Penalties, penalties and more penalties!
Can I contact you if I want more information?
Of course. For existing clients we are, as always, prepared to assist you to meet your obligations, and we are considering setting aside another day to make ourselves available to clients in small groups to go through RTI. For other employers we would be pleased to speak to you to see if and how we can help you.