HMRC is changing the way the PAYE system operates in the biggest shake-up of the system for over 65 years. Yet according to John Harding from PwC, writing in July’s edition of Payroll World, 80% of employers are woefully unprepared for the change.
Real Time Information is HMRC’s new service which will involve employers and pension providers informing HMRC about tax, National Insurance contributions and other deductions when or before the payments are made, instead of waiting until after the end of the tax year.
Employers and pension providers will start using the new RTI service in the period April 2013 to October 2013. By October 2013 all employers will be using it.
Reducing errors; reducing fraud
Under the current PAYE system employers tell HMRC what deductions they have made from their employees’ pay. They do this after the end of the tax year. HMRC then reviews whether those deductions are correct.
With RTI, employers will send information to HMRC when, or before payments are made. HMRC say this will better enable them to ensure the correct deductions are made from pay, so more employees pay the right amount of tax and National Insurance in the tax year.
The change is also intended to pave the way for the introduction of Universal Credits, reduce tax code errors and fraud, and make it easier for HMRC to chase late payments.
The system can’t work unless HMRC and the employer both hold the same payroll information, so before RTI can commence, every employer payroll needs to undergo alignment with HMRC records.
Currently, says John Harding of PwC, fewer than 1 in 12 employers have completed a payroll cleanse in preparation for alignment. And almost 80% of employers are yet to look at the requirements for RTI.
There’s time yet, but it’s fast running out, and those employers who don’t cleanse their data effectively will find their RTI submission rejected by HMRC.
If you’re one of the 80% yet to begin preparations for RTI, it’s time to set your HR and Payroll teams to work.