What is RTI?

Real Time Information (RTI) is the most significant change to Pay As You Earn (PAYE) since its introduction just after World War II when the government of the day was keen to raise taxes to pay for the war debt.

From April 2013 employers will receive an invitation to join RTI which will advise the date upon which the employer needs to submit an Employer Alignment Submission (EAS) or their first Full Payment Submission (FPS).

An EAS will normally be required where the PAYE scheme has 250 or more employees; in most other cases HMRC will use the data provided in the employer’s first FPS to undertake Employer Alignment.

There is no change to the way in which tax or national insurance is calculated – this is a simply a change to the reporting requirements.

New procedure

  • in effect an electronic P35, called a Full Payment Submission (FPS) is to be submitted every time anyone is paid whether monthly, weekly, or even for most ‘ad-hoc’ payments;
  • the first FPS from the employer must include year to date details for all employees who were paid at any point during the tax year, including those who have left or have not been paid in the pay period;
  • even where an employer has sent an Employer Alignment Submission (EAS), the first FPS must still include all employees;
  • where an employer migrates to RTI part way through a tax year, the employer will not be required to send HMRC forms P14 and P35 for the year of migration;
  • the data which the employer submits about liabilities in respect of each employee, that is, income tax, employer’s NICs, employee’s NICs and student loan, will be used to calculate how much an employer must pay to HMRC for each tax month;
  • the employer no longer needs to submit a form P46 for new starters without a P45, however they will be required to ask all new employees a series of starter questions, similar to those on the form P46 including the same P46 statements A, B and C, and student loan question which will allow the employer to establish the correct tax code to apply, and make student loan deductions if appropriate;
  • the employer no longer needs to submit a P45 (part 3) or P46 to HMRC as new starter details will be included in the FPS instead;
  • leaving details will be included on the FPS instead of submitting a form P45 to HMRC, however, employers will still be required to give departing employees a form P45;
  • a P38A supplementary return will not be needed as employers will tell HMRC about all payments made during the tax year each time their payroll is run.

Employers will be required to submit a FPS ‘on or before’ payment is made to employees except where reporting ‘on or before’ will cause difficulties in a small number of cases, or for ‘notional payments’ – see http://www.hmrc.gov.uk/rti/on-or-before.pdf

Under RTI employers will have to tell HMRC about payments of earnings to all employees, even where an employee earns less than the Lower Earning Limit (LEL) – see P38A above.

Preparation

The most important issue to address in advance of joining RTI is to make sure your payroll employee data is complete and accurate. If you are using Central Accounting then you will need to complete the additional data required on the employee account screen (under “Additional information for RTI”).

Further information is available from HM Revenue & Customs.