PAYE Real Time Information. Guidance notes

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Stuart Briggs
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1 PAYE Real Time Information Guidance notes Fiander Tovell LLP Issued on 4 February 2013 Disclaimer: Please note the following: This guidance is all based on our understanding of the legislation and HMRC guidance at the time of writing (see date above) This guidance represents an overview of the regime and does not go into detail concerning all aspects of RTI. It cannot therefore be relied on for any specific situations. Care should be taken, especially with unusual situations, to ensure that the detailed rules are understood and followed. Certain aspects of RTI are still being consulted on, and the regime is subject to change at short notice. Fiander Tovell LLP takes no responsibility for updating the guidance to reflect any changes and should always seek advice specific to your individual circumstances. 1

2 1 Introduction Entry into RTI Filing requirements Glossary Things to do Systems Data Data Validation Full Payment Summary Employer Alignment Submission Full Payment Submission Overview Data required Delayed filing Employer Payment Summary End of Year Summary New employees Data required Verification Passports Other issues Error correction Expenses and benefits Share options P45s Penalties

3 1 Introduction Real Time Information is the new system for reporting PAYE and NI liabilities to HMRC. Fundamentally it is still PAYE the employer has to calculate the tax and NI to deduct and report it to HMRC but it makes the whole process much more thorough and immediate, and so in the short term at least will be a serious upheaval. It replaces the old year-end system where the total amounts for the year were reported on P14s and P35s. Instead, under RTI a separate report needs to be made every time a payment is made. The reports could be required after each payroll processing, be that weekly, fortnightly or monthly, depending on your routine payroll. It could also include other times such as an employee leaving half-way through a month. So if you have some employees paid monthly and some weekly, you could have five or six returns a month as a matter of course. The major aspects of the new regime are set out below, but there are many detailed rules. If you have any questions, or if you would like us to talk through your particular situation to identify any potential pitfalls, please give us a call. 1.1 Entry into RTI RTI applies to almost all employers from the start of the new tax year in April Some employers may be permitted to start late, but this will be unusual. A certain amount of work is needed to prepare for RTI, mostly around gathering information. HMRC is encouraging employers to join early, but this is an irrevocable decision. The advantage of joining early is that you can get more help from HMRC, but of course it means less time to prepare. Any new payrolls set up from now must join RTI immediately. 1.2 Filing requirements Key requirements are: Data Validation When you start RTI, you must confirm the data you have in your payroll system with HMRC Full Payment Submissions Every time you make a payment to an employee, whether taxable or not, you must use your payroll software to report it to HMRC. A single submission can cover all the employees paid at the same time Employer Payment Submissions Every month youcan make one or more separate reports to HMRC to reclaim SMP, CIS tax, and any other amounts that may be due to you. These submissions are only needed if there is something to report on them. 3

4 1.2.4 Payment Payment is entirely separate from RTI, and is done exactly as it is now - regardless of the number of returns you make for a month, the tax and NI is still payable on the 19th of the month, based upon payments made up to the 5 th of the month. 2 Glossary EAS (Employer Alignment Submission) EPS (Employer Payment Submission) EYU (Earlier Year Update) FPS (Full Payment Submission) Tronc Validation A one-off filing HMRC may require you to submit at the start of RTI, to ensure all information is up to date. Only needed if your payroll is complex. A monthly return of items which don t relate to individual employees. A return correcting an error made in a previous RTI year A return made every time you pay one or more employees A centralised system for tips and service charges in a bar or restaurant A one-off process to confirm that HMRC s records are up to date. You will either need to include extra information in your first FPS, or HMRC may require an EAS (see section 4) 3 Things to do You will need to look at a number of areas to make sure your business can cope with RTI. The main things are ensuring that your systems are set up to funnel the correct information to HMRC at the right time, and making sure that you have the information to send them. 3.1 Systems Payroll software Commercial payroll software should be able to do everything required, but reportedly there are some bespoke systems around that will need to be replaced. You also need to register for PAYE Online (through the Government Gateway), if you haven t already done so. HMRC have provided a basic system, but this only works for up to 9 employees, and can t cope with some moderately complex issues. 4

5 3.1.2 Payment of salaries HMRC s preferred payment method is by BACS, as this allows you to tie in the payment to the submission, but you don t have to cash, cheque etc can be used HR and Payroll systems Consider whether anything needs to be changed to make sure what you do on the ground is compatible with RTI. Particular areas to review include: - Cash payments - Irregular payments and overtime - Directors on annual payment - A clear separation between pay and benefits is needed: you can t sort it all out at the end of the year. Staff numbers are a potential pitfall: if an employee leaves and then re-joins, you need to give them a new payroll number or HMRC s system will assume they stayed on the payroll throughout. This could cause problems with PAYE coding, and may lead HMRC to issue penalties on the grounds that they were omitted from returns Tips &troncs 3.2 Data If you have a troncthe troncmaster should be operating PAYE. They will therefore need to submit RTI returns for the tronc and so will need access to the appropriate software. This will need to be a separate payroll from the business s main payroll. It may make sense to use the same computer systems for the reporting, but this integrates the operation of the tronc more closely with the business and the tax or NI position may be affected if the employer is too heavily involved. Particular care needs to be taken about cash handling, as that can affect the tax position significantly. Systems need to be in place to capture thedata about employees which is required for submissions, keep up to date with any changes, and retain the data for two years after they cease their employment. As set out in section 4 below, when you first start RTI you will need to check the information you hold against HMRC s files, and this requires you to ensure that your own records are complete and accurate. Collecting all the data from all your employees may take some time, especially as only one initial submission can be made and it is essential that all relevant information is included. See sections and for details. Care should be taken when importing data from other computer systems. For example, RTI address fields can only be 35 characters long, so if the address is held on HR systems as a single field it may not fit. 5

6 You also need to confirm that the information in your records is correct. That can mean things like: - Passports to check right to work in the UK (but not specifically for RTI) - Confirming the NI number with a P45, old P60, or via HMRC - Utility bills to confirm address 4 Data Validation Employers need to make sure the information they hold matches that on HMRC s systems. The only exception is if you have only just opened a new payroll and have never done a paper submission. There are two ways to validate data. HMRC will let you know which is required. 4.1 Full Payment Summary For most employers all that is required is ensuring that the first FPS has all the relevant data in. So as long as the payroll software is up to date there should be no problem. Note that you have to include all employees, even if they left earlier in the tax year. If you start RTI at the beginning of the tax year in April 2013 this will not be relevant, but if you start earlier than that (voluntarily, or by starting a new payroll), or if HMRC allow you to join late, it will be an issue. 4.2 Employer Alignment Submission Requirement This is only required if HMRC ask you to do one. They will require an EAS if: - You have over 250 employees - You have multiple payrolls (several providers, or separate ones for weekly and monthly employees, etc) - The FPS is too big for the bandwidth Employer data required HMRC office number PAYE reference Accounts Office reference All these should be on the P30B or P30BC. 6

7 4.2.3 Employee data required NINo Name Date of birth Gender Address Country Start date Payroll ID Irregular Leaving date Tax code Expat flag - if available - surname and initial at least, but preferably full name and title, no nicknames or abbreviations, all names in the correct order - dd/mm/yyyy - Male/Female quote the current gender if it is in transition - optional if you ve quoted the NINo. The postcode is optional. - mandatory if resident outside theuk - if started this year and no P45 procedures done - optionalunless employee has two employments in the same scheme - flag if paid irregularly - dd/mm/yyyy - mention if you used the week 1 / month 1 basis - flag if employed by someone outside the UK but working here 7

8 5 Full Payment Submission 5.1 Overview This is the main return under RTI. Strictly, an FPS is required every time you make a payment of wages or salaries. It can also be used to correct errors in previous FPSs, even if there s no additional payment, although this may not be the best way to correct the problem (see section 9.1). In practice, HMRC have now accepted that it will not always be possible to file an FPS before making a payment, and in some circumstances the FPS can be delayed. HMRC envisage that most FPSs will be routine submissions made weekly or monthly (depending on your pay period), in which case the additional impact on the payroll process will be negligible you just have to press the submit button. In practice the need to confirm that the details are correct before making payment may mean that the process needs to start slightly earlier. You can split an FPS into batches, if that makes life easier. 5.2 Data required Apart from the initial data gathering exercise, most if not all of this data should be the same as is required for your existing payroll systems Employer data required HMRC office number PAYE reference Accounts Office reference UTR or COTAX reference Tax year Employee data required This is pretty much what was required in the validation step (see section 4.2.3). Any changes may need to be flagged up Pay data per employee Taxable pay to date Total pay to date Student loan payments recovered Pay frequency (eg weekly or monthly) Pay date Tax week/month for PAYE/NI Number of earnings periods covered Flag if earnings are aggregated for NI purposes Normal hours worked (up to 16, 16-30, over 30, or Other ) Tax code - mention if you used the week 1 / month 1 basis BACS hash tag (if using direct BACS) Then fill in the actual amounts for this payment, broken down into pay, SMP, etc. 8

9 5.3 Delayed filing The general rule is that an FPS must be filed on or before the date of payment. As following this rule strictly would be hard or impossible to comply with in some circumstances, there are some cases in which an FPS can be delayed. These generally cover the situations in which the information required for an FPS would not be available at the time of filing Variable pay If a payment for work done on a certain day is made by cash or cheque on the same day, the amount isn t known in advance, and it would be impractical to file the FPS before payment, then the FPS can be filed up to a week later. If the next regular FPS is due within the week, however, the payment should be reported on it. This would apply to, for example, catering staff paid at the end of their shift, or crop pickers on piecework rates Small earnings Similarly, if an employee is paid below the NI lower earnings limit, or is a casual employee engaged for less than a week, the reporting of the payment can be delayed for up to a week Ad hoc payments If a one-off payment is made outside the normal payroll run, it can be included in the next regular FPS. Examples given by HMRC include a new starter who is a bit late being included in payroll records, an accidental omission of an overtime payment, or paying some wages on account. These all need to be exceptional occurrences. HMRC may count returns as being incomplete if such matters become a habit Benefits If benefits are paid which suffer Class 1 NICs, but are not subject to PAYE, then reporting can be delayed by up to 14 days. This would cover things like paying an employee s phone rental where the phone is used for both business and private use. 6 Employer Payment Summary This type of return is sent in monthly, if you need it at all. It is required if you need to do something other than paying an employee, such as: - Recovering SMP or SSP - Reclaiming CIS deductions - NIC holiday You need a separate EPS for each of the above: you cannot combine two or more claims on one EPS. 9

10 You need to include the employer details required for an FPS, plus the details of the amounts you re recovering. You generally need to send them in by 14 days after the end of the tax month, so by the 19 th of the month after. That way it ties in to your PAYE payment, which will be net of the amount you re reclaiming. You can also flag up that you won t be making an FPS for a few months, if you have no employees to pay for a while. 7 End of Year Summary This is not a separate submission: it is just that in the last submission you make in a year, whether it s an FPS or an EPS, you simply need to add some extra details. That would normally be around the end of March, unless you are closing the payroll for good in which case it could be anytime. The details required are basically just flags: - This is the last report of this tax year - This is the last report ever (if payroll is closing) and date of cessation Then you flag odd things done in the year: - A payment to an employee was made free of tax - Benefits or expenses were paid - A worker on this payroll was employed by someone outside the UK - Pay was passed to a third party - P11Ds are needed for employees - The employer is a service company and operated the IR35 or MSC rules 8 New employees Employers need to keep written records of the information gathered from new employees. HMRC form RTI46 sets it all out in a convenient format, but you can use your own forms if you prefer. 8.1 Data required Collection Name Date of birth NI number Gender Address Are Student loans deductible? Job status: A) This is the only employment, and employee has had no job or benefits since 6 April B) This is the only employment, but the employee has had a job or benefits since 6 April C) Employee already has another job or pension 10

11 8.1.2 Tax coding Most of this just lets you set up the employee on the payroll system. The job status section allows you to get the correct tax code. Essentially it means: A) The employee has not been on any other payroll this year B) The employee was on another payroll, but has come off it C) The employee is on another payroll and is staying on it If you have a P45 you can get the tax code from it, though you may need to be careful early in the tax year as the code probably hasn t been updated for the increase in personal allowance. If there s no P45, then: A) Use the emergency code ( 810L for 2012/13; 920L for 2013/14) B) Use the emergency codeon a week 1 / month 1 basis C) Use BR 8.2 Verification You are required to check the data. Your payroll software might do it automatically, or you can call the Employer s Helpline, or you can use passports, utility bills, etc. Care needs to be taken to identify people who don t need to be on the payroll, such as selfemployed contractors or agency workers. On the other hand, watch out for agency workers where you do need to do something: some of them you pay direct, and if the agent is foreign there might be an issue. 8.3 Passports You must ensure that the employee name and details are accurate and the passport is a good record from which to verify this, but it is not required. There is a place to record the passport number in the employee details but at the moment this is not a mandatory field. It may however be good practice to record it as evidence that you have verified the data recorded. 11

12 9 Other issues 9.1 Error correction Data Generally, if employee data is wrong you need to call the Employer s Helpline If their address or name changes, the employeemust tell HMRC personally. You need to change your payroll records, but until HMRC heardirectly from the employee they will keep the old data on their records and the new data on the FPS will be ignored. It is therefore important to ensure that employees are aware that they need to inform HMRC of any changes (the best way is to use the electronic form on the HMRC website) and that you cannot do it on their behalf. If you get a new employee s start date wrong, HMRC s guidance is (perhaps surprisingly) that you should change it on your files but not include the change on any submissionto HMRC. As HMRC s systems will have the incorrect date in, adding a second date may lead to duplicate records being produced. So long as the amounts of pay, tax and NI are all correctly recorded the change of date should have no impact. However, if in doubt we would recommend calling the Employer s Helpline Figures There are two options if you get the figures wrong on an FPS: - Submit an FPS showing the movement. You need to do this if you actually underpaid someone and make a top-up payment - Update the year-to-date figures on the next FPS and carry on regardless. You can only do this if there s no cash changing hands. It is not possible to alter a submission which has already been made Prior years If the error relates to a previous RTI tax year, you need to submit an Earlier Year Update. This is much the same as an FPS, but it just updates the year-to-date figures in the final FPS for that earlier year. If a payment is needed to correct the employee s cash position, that will be a current year payment which will need to be recorded on a current year FPS. 9.2 Expenses and benefits These are still reported on P11Ds. All you need to do in RTI is flag that you re paying them. A P46(Car) is required when you give an employee a car, or take it away, or give them a second one. It is not needed when you change the car, though you can submit one if you wish to be sure of the position. 9.3 Share options 12

13 9.4 P45s Where share options are exercised there is a notional payment to the employee, on which PAYE is due. An FPS is therefore required, but it is impossible to submit it before the options are exercised as the notional payment doesn t exist until afterwards. HMRC have therefore allowed an exception from the normal rule that an FPS must be submitted before the date of the payment. For share options and other notional payments the FPS need only be submitted before the earlier of: - The day PAYE on the payment is accounted for; and - 14 days after the end of the tax month This allows you to include PAYE on share options on the normal FPS for the monthly payroll, or to submit an additional FPS showing the notional payment, whichever is more convenient for you. These still need to be issued, but only to the employee for their records and to pass to the new employer to confirm the information they need to bring the employee onto the payroll. Under RTI there is no need to send a P45 to HMRC, as the information is all in the relevant FPS. 9.5 Penalties Late filing To allow some time for the system to bed in, there are no penalties for late filing of submissions in 2013/14. Penalties will apply from 2014/15, but the details of these are not yet clear Inaccurate filing Where there are errors in submissions, HMRC will apply the same penalties as are currently imposed for PAYE. Broadly, they take the amount of tax which would have been at risk if the error had not been discovered; then multiply this bya percentage which varies depending on how serious the inaccuracy was, whether it was deliberate, and whether the employer disclosed it to HMRC voluntarily. The penalty can be as much as the tax due in serious cases, but for a minor slip that is corrected voluntarily by the employer without pressure from HMRC it can be 10% or less, or even nil Late payment The current rules for late PAYE payments apply: the penalty is a percentage of the tax paid late in the whole year. If payments are less than six months late, the first late payment is ignored and then the percentage increases with the number of late payments after the first, from 1% if you have three late payments up to 4% if ten or eleven are late. If payments are more then six months late they incur a 5% penalty, and another 5% if twelve months late. Interest is also charged on the late payments, in addition to the penalties. 13

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