PAYE has been the system for the deduction of tax/National Insurance since its introduction back in 1944. HMRC are creating significant changes to the way that all payroll related deductions are reported. Currently employers submit a year end return once a year. Under RTI employers and pension providers are required to inform HMRC about deductions when payments are made not just at year end. However reporting for benefits is not being altered at this time but is expected to in the future.
The main driver to this change is to support the introduction in 2013 of the Universal Credit system to provide the Department for Work & Pensions with the necessary information for processing claims. HMRC also say that for employees it should reduce the frequency and size of under and overpayments of both tax and tax credits, something HMRC is often criticised for.
This will be phased in from April 2013 through to October 2013 depending on the employer size. Testing will take place from April 2012 with a number of pilot employers.
Our sources in HMRC are clear that there is governmental commitment to making this change and it will happen, especially given the driver around Universal Credits. However, employers seem sceptical and think that the timeframe is likely to slip.
Start planning well in advance of the mandatory deadline by allocating resource and budget against set milestones. There will certainly be an impact on HR and payroll systems which will be even more pronounced if these are in house or bespoke. There will also be risks involved in making these changes, not least the potential for impact on employees and additionally, negatively raising the employer’s profile with HMRC. RTI may well impact an employer at the same time as pension auto-enrolment and, therefore, the interaction with the expected pension reform staging date needs to be identified and managed. Finance Directors and HR Directors need to be aware and set plans in motion to deal with these implications.
The introduction of RTI requires a wider debate around managing the tax and compliance risks associated with PAYE and National Insurance contributions which fall outside of payroll. These may include, for example, payments to contractors, expenses, benefits and termination payments. BDO can help in a number of ways:
For further information, please contact your local employment tax specialist or Teresa Payne on +44(0)20 7893 2012 or email@example.com.