HMRC UPDATE MARCH 2013 – Relaxation of reporting arrangements for small businesses

By October 2013 it will be mandatory for all businesses to process Pay As You Earn (PAYE) data using HMRC’s new Real Time Information (RTI) system.

However, whilst all employers operating PAYE will be directly affected, it’s quite apparent that this substantial change is news to many of the people we know and meet. This post therefore summarises the best of the information produced by HMRC and Sage.

Although these changes won’t arrive until 2013, there are some preparations you can start now to make life easier next year.

What’s going to happen?
Currently, employers send information about tax, National Insurance contributions (NICs) and other payroll deductions to HMRC after the end of each tax year. The result is that HMRC cannot correct mistakes until the employer sends this information.

Under the new Real Time Information (RTI) system, information about tax and other deductions under the PAYE system will be transmitted electronically to HMRC by the employer every time an employee is paid.

Employers using RTI will no longer be required to provide information to HMRC using Forms P35 and P14 after the end of the tax year, or to send Forms P45 or P46 to HMRC when employees start or leave a job.

HMRC state that the new system will:

• Make the PAYE process simpler and less burdensome for employers
• Reduce costs for HMRC and enable it to deal with non-compliance (such as late payment and debt collection) more effectively
• Support the payment of Universal Credits
• Make PAYE more accurate for individuals, over time reducing the number of bills and repayments sent after the end of the tax year
• Reduce tax credits error and fraud

When is it going to happen?
HMRC currently envisage that all employers and pension providers will have joined the RTI system by October 2013. To make sure that the service is thoroughly tested and issues are resolved, HMRC will pilot the RTI service with volunteer software developers and employers for a year, starting in April 2012.

HMRC also envisage that most employers and pension providers that haven’t joined the RTI system during 2012-13 will do so in April 2013, and that RTI will be routinely operating by no later than October 2013.

How can I prepare for the introduction of the PAYE Real Time Information system?

1) Your Sage Payroll system
Sage are one of the leading software vendors participating in HMRC’s RTI trial starting this April. They will develop an updated version of their payroll software that includes the ability to submit Real Time Information electronically to HMRC, using their existing and proven Sage Internet Submission technology.

It is however anticipated that the RTI update won’t be available if you’re currently using an older version of Sage payroll software that is no longer supported by Sage. By 30th March 2012, this will include Sage 50 Payroll versions up to and including V2008.

2) Employee data
With the new PAYE Real Time Information system, the information that you submit to HMRC every time you pay your employees is matched against records HMRC store on their National Insurance and PAYE Service (NPS). If the records you submit don’t match, you may create duplicate or inaccurate records which may result in incorrect tax calculations or trigger HMRC compliance checks – so now is the time to make sure the information you hold about your employees is correct.

Sage has prepared this handy checklist for maintaining accurate information in your payroll system:

Employee name
DO – enter the employee’s full forename and surname.
DO – enter a double barrelled forename or surname in full.
DON’T – use known as, for example, if HMRC know the employee as ‘Robert’ don’t use ‘Bob’.
DON’T – enter an initial in either the Forename or Surname boxes.

Date of birth
DO – enter the correct date of birth and ensure it’s in the format DD/MM/YYYY, for example 05/05/1985.
DON’T – enter a default date of birth, such as 01/01/1901, or make one up.

NI number
DO – only enter an employee’s correct National Insurance number.
DON’T – make up an employee’s National Insurance number.

Make sure you get employee information from an official source:

• HMRC or Department for Work and Pensions documentation
• A passport
• A birth certificate

If your employee doesn’t know their National Insurance number, encourage them to check any documentation they may have received from HMRC or the Department of Work and Pensions (DWP). If they still can’t locate it, they can download Form CA5403 from HMRC, or they can phone the Registration Helpline on 0845 915 7006.    

If the employee has never been issued with a National Insurance number, they should phone Jobcentre Plus on 0845 600 0643.

Further information about maintaining accuracte employee information can be found on the HMRC website here >>