Real-Time Information: The pilot plans
Simon Fowler navigates the Real-Time Information maze.
If a payroll manager hasn’t heard about the roll-out of Real-Time Information (RTI) by HM Revenue & Customs (HMRC), then they have clearly been sunning themselves on Saturn for the past few months. RTI is probably the biggest change to hit Pay As You Earn (PAYE) since it was introduced in 1944, and the impact is going to be huge.
In a nutshell
From April 2013, all but a handful of UK employers and pension providers will have to electronically submit information to HMRC about PAYE deductions as they are made, instead of annually.
The RTI pilot is already in progress, running from 1 April 2012 to 31 March 2013, with many obstacles and challenges expected along the way. So what does the pilot entail, and what are the concerns and benefits of getting involved?
Top tips: Making RTI work
The following five top tips will help to maximise the RTI pilot opportunity.
Under RTI, HMRC will be told about tax, National Insurance contributions (NICs) and other deductions when or before the payments are made, instead of after the end of the tax year. RTI reporting will become an integral part of an employer’s normal payroll activity. Therefore, when they run their payroll, the payroll software will gather the information required and send it to HMRC. With RTI up and running, the data passed on will be far more accurate and timelier than currently.
The only employers who are exempt from electronic RTI submissions are those whose religious beliefs are incompatible with the use of electronic communications. Together with individuals who hire carers to provide services to a disabled or elderly person in their home, they will be permitted to provide RTI on paper.
RTI data will need to be submitted from April 2013, with ongoing penalties applying to late filings expected to be introduced with gusto from 2013/14. For 2012/13, the final RTI submission of the tax year will be treated as equivalent to the P14/P35 end-of-year return, and penalties for late filing will apply as they do now.
Ironing out the problems
A pilot is being run by HMRC to iron out the RTI problems in advance of all employers coming on board in April 2013. This initiative, which is a huge logistical exercise including live data, means ramping up involvement from just 10 employers in April 2012 to 250,000 by March 2013. All firms participating in the pilot are doing so in collaboration with their software providers to ensure that their payroll systems are able to effectively cope with the requirements.
Only 10 businesses (or more accurately, PAYE references) are taking part in the “pre-pilot” for a month from April to May 2012. This aims to test the systems to ensure that they can handle the data volumes before a further 310 businesses come on board in May.
In July 2012, the initiative is being extended to include 1,300 UK-wide employers. Then, from November 2012, HMRC will be phasing-in thousands more, with a target of 250,000 by March 2013.
The pilot officially ends on 5 April 2013, with all UK employers being required to submit live RTI data from 6 April 2013.
HMRC intends to direct the majority of employers and pension providers to make RTI returns from 6 April 2013. However, the legislation provides HMRC with flexibility so that in limited cases it can issue a direction for a later date, up to 6 October 2013, if necessary.
Stages and requirements
Employers involved in the pilot, and with RTI in general, will be required to go through a number of different stages, starting with data improvement. This involves the cleansing of existing employee information and is a key requirement before any RTI data can be submitted to HMRC. The employer must ensure that its data on all current staff as of tax year 2012/13, including name, address, gender, date of birth and tax code, is as accurate as possible.
To assist with this process, HMRC is feeding back any discrepancies to employers, such as National Insurance (NI) numbers that don’t match the correct records. HMRC is also providing guidance on how to most effectively cleanse data through a range of methods, including webinars and seminars.
The second stage is a payroll alignment exercise, which must be done before businesses start sending RTI payment returns. HMRC has accepted that data an employer holds is likely to be more accurate than any it holds. Therefore, the exercise will mean that out-of-date employee data will be replaced with up-to-date and accurate information.
RTI pilot: An insider’s view
John Clarke, Payroll and Pensions Supervisor at Aircraft Research Association, says: “As with any new project, we will be given a lot of information from the start and will be given time to adapt to the new ways of working. I hope that by partaking in the pilot, the whole roll-out of RTI will run smoothly. I am anticipating that by the time it does, I will be proficient in the use of the new software and have a good grasp on the timings involved with sending information across to HMRC.
“My advice to those employers looking to get involved in the pilot is to be positive. View it as a means of getting in at the base level and learning, at a steady pace, the new ways we will have to work. It does not take up a great deal of time as the greater part of the work is completed by the software provider and HMRC. We are the middle men who make sure that the software works in a live environment and test that the HMRC software works through the transmission of our data.”
Each employer must provide an extract of all individuals who are employed within a particular PAYE scheme in the current tax year, including those who have left since the start of the tax year. The alignment extract can take one of two forms – the Employer Alignment Submission (EAS) or the first Full Payment Submission (FPS).
An EAS must be undertaken by every business with more than 250 staff. This submission of cleansed employee data will need to take place before the first FPS. This will be early April for the initial 10 companies and the start of May for the additional 310 participating in the pilot.
Businesses with fewer than 250 staff can submit an FPS instead of an EAS, although many software developers have taken the decision that the EAS should be created and submitted for all employers. The first FPS can be created per payroll if an EAS has already been sent. The first FPS must report details of pay and deductions and year-to-date figures for all employees who have been in employment since the start of the tax year. It must also include individuals who have left since the beginning of the tax year and those who have not been paid at all.
After the first FPS, every time the employer makes a payroll payment, it will need to send an FPS to HMRC at the same time. FPSs after the first one must only include data on employees paid in that particular pay period. The submission of an FPS will completely negate the electronic submission of P45s and P46s, and end-of-year returns P14s and P35.
An Employer Payment Summary (EPS) reports any adjustments to the tax and NI that need to be paid for that tax month. It is required once per tax month per PAYE reference.
The National Insurance Number Verification Request is an ad hoc submission that allows employers to confirm that they have the correct NI number (NINO) for a new starter. It also allows them to request a NINO when one has not been provided by the employee. Up to 100 NINOs can be requested per single submission.
Throughout the RTI pilot, participants will be supported by both the employers’ payroll providers and HMRC effectively “hand holding” them. HMRC is allocating a customer relationship manager to each pilot business. However, it will still be heavily reliant on software providers to pass on information.
Overall, most employers appear to be accepting of the RTI principles. However, this does not quell their concerns as they embark on the project.
With any change comes fear, and RTI is no different. It will be delivering significant modifications and will require an adaptation of payroll processes in order to comply with its requirements. As it remains unclear as to how exactly RTI will perform and how payroll departments will accommodate the changes, in some cases there is a real anxiety about its day-to-day impact. Typical concerns include whether RTI will involve a lot of extra work and training, and if HMRC will be able to cope with the timings and/or intricacies of a particular payroll. Other worries are whether businesses will be able to get their employee data cleansed in time and if technology will be up to the task.
HMRC admits that it does not currently have all the answers, which is why the pilot is so important.
Ahead of the game
The pilot is expected to iron out employers’ concerns, making the roll-out of RTI to all employers in April 2013 as trouble-free as possible. It provides the opportunity for those involved to be “ahead of the game” and enables them to find out what is happening early on. With early visibility comes early preparation, and firms can also steer how RTI operates.
RTI pilot: An insider’s view
Graham Camfield, Systems and Payroll Manager at The Brendoncare Foundation, says: “It was important to get involved in the RTI pilot as the care industry has pay periods that are unusual. We felt that if we didn’t make HMRC aware of the nuances early on, there would be issues further down the line. Getting involved in the pilot allows us to have direct input and ensures that we can play an active role in shaping how RTI will operate in relation to the care sector.
“It’s important for companies to consider what they want to get out of the pilot and what will be expected from them. Although payroll needs to drive the RTI pilot, there needs to be valuable involvement from others including HR and management.
“Finally, ensure that before the pilot kicks off a thorough payroll data cleansing exercise has taken place so that when the data is submitted to HMRC, there won’t be too many queries. Don’t seek 100 per cent accuracy as this is unrealistic.”
Another key benefit is that all participants are hand-held by HMRC throughout the process. They will also be receiving one-to-one attention and assistance from their payroll software providers. Having this ongoing support slowly and carefully eases them into RTI.
So, with the RTI pilot now upon us, marking the start of the biggest change to PAYE for nearly 70 years, the question is – are you going to be involved or would you prefer other organisations to navigate the way for you?