Real Time Information for Payroll

Employees in the UK are paid through the Pay as You Earn (PAYE) scheme with Income Tax and National Insurance Contributions (NICs) deducted at source. Tax deductions are made according to a tax code issued by HMRC, which is based on information from the employer’s end of year payroll returns and the taxpayer’s tax return if they are required to submit one. The system generally has worked well but it has some flaws.

The main problem is that inaccuracies are often not detected until the end of the tax year when the employer makes their annual payroll return and the actual tax due is calculated. In order to resolve this problem, payroll reporting is about to change significantly with the introduction of Real Time Reporting (RTI). Under the RTI system the employer will file an electronic report every month with their employee’s tax and NIC payments so that errors are detected much more quickly.

The new system is being trialled at present and will be introduced from April 2013, becoming obligatory from October 2013. Commercial payroll software should be compliant from the start of the 2013/2014 tax year and small employers with less than nine staff can use the free HMRC basic payroll tools. Employers will be notified of the need to use RTI 4-6 weeks before they need to operate the system but the onus is on employers to be ready in time so it is important to understand the system in advance.

• In order to prepare for RTI there are a number of things to think of:
• Check when your payroll software will be RTI compliant updated in time
• Ensure your payroll records are in order, with the correct name, date of birth and NI number
• Update BACs references with additional characters to identify them as RTI payments (normally generated by your payroll software)

As long as you are prepared for the change, then it should hold no fears.