HMRC has mandated that by April 2013 1.4 million SMEs and most employers need to be Real Time Information (RTI) compliant. Mark Paraskeva, CEO of the SME division at IRIS Software Group, discusses the payroll changes and how businesses can prepare.
HMRC is causing the biggest shake-up to payroll legislation since the introduction of PAYE in 1944, with the mandate of RTI. The challenge is that many companies may be wondering what RTI actually is. When does it come into effect? And perhaps, most importantly of all, what needs to be done to ensure compliance?
Firstly, RTI is a new payroll reporting legislation for PAYE, which will start to take effect in November 2012 for start-up companies, April 2013 for businesses with fewer than 5000 employees and then in October 2013 for large organisations. Critically for start-ups and SMEs these dates are not far off and it is vital they understand and are prepared for the changes as RTI is mandatory.
RTI is not a mystery. It simply requires all employers to submit information about PAYE to HMRC every time a payroll is run and employees are paid. This means transmitting an electronic RTI submission to HMRC on or before every pay date, rather than at the end of the year.
Businesses unprepared for RTI
In an independent survey commissioned by IRIS Software Group, we discovered that 55 per cent of customers felt unprepared for RTI, while 81 per cent think that HMRC have not provided enough support through the changes. It is clear businesses need further guidance in order to prepare and ensure compliance.
The aim of RTI is to move PAYE into the 21st century. It will make operating payroll easier for employers and pension providers and make the PAYE system easier for HMRC to administer. The result being that over time it will make PAYE deductions more accurate for individuals. The HMRC stated that ‘RTI will make it easier for employers, pension providers and HMRC to administer PAYE. RTI will remove administrative burdens of £300 million a year from employers, mainly from the abolition of the end-of year PAYE returns process – the biggest single contribution that any tax change could make.’
While the benefits of RTI are obvious, it can seem daunting for many companies to change the way they work. However, there is no get-out clause for RTI since businesses have to comply. While fines for late submission will not be implemented before autumn 2013, they are expected to be in place by April 2014.
Penalties for non-compliance
Not only will HMRC impose penalties for failure to comply, but get it wrong and employees could be taxed the wrong amount and be under or over-paid throughout the year. In addition, an employee’s Universal Credit and State Pension could also be affected and this is unlikely to foster good workplace relations.
SMEs and start-ups need to act now and check their current payroll system to see if the software will be RTI-ready in time. For example, Sage has already announced that it will not be providing support for RTI in their TAS payroll product, leaving customers concerned that they may be unable to meet the deadline and forcing migration to an alternative solution.
Unfortunately it is not unheard of for payroll providers to end their support of pre-existing products, given the recent news that RTI is coming into action. Research shows that 17 per cent of HMRC-accredited software providers have said they are not planning to be RTI-ready, while a further 45 per cent don’t know if they will be supporting RTI.
SMEs and start-ups need to take action into their own hands. First, they need to audit employee information as any RTI submission will be declined if employee and company details are incorrect. Secondly, companies need to find out how their payroll provider can help with the transition onto RTI. Of course, if the provider is not supporting RTI this is not very helpful, but it is far better to find out now, rather than the day before the government deadline.
Adapting to RTI
Particularly as a recent, All-Party Parliamentary Taxation Group report on RTI, stated that up to 23 per cent of microbusinesses do not have any payroll software in place and so will be forced to buy new systems that can handle RTI. The solution is to work with a payroll provider that fully understands RTI – one that has RTI-ready software and can guide any business through the new regulation to ensure compliance.
SMEs and start-up companies should also consider providers that have been working closely with HMRC to pre-empt the regulation changes, in order to ensure they are met correctly. In fact, the HMRC has an onsite list of all RTI-recognised suppliers that offer a free RTI-ready payroll solution to microbusinesses.
To understand and obtain RTI compliance, take the time to recognise the changes and act now rather than later. Businesses need to ensure that all the modifications and preparation points discussed have been acknowledged. Working in this way, SMEs and start-ups can be confident that RTI will not creep up on them and that they will be able to abide by the legislation as soon as it comes into action.