Real Time Information is here: what small businesses need to know 

The smallest businesses have longer to prepare for the onset of Real Time Information reporting, but larger companies have to comply from now. examines what RTI is and what needs to be done.

What is Real Time Information?

Under the current Pay As You Earn (PAYE) system, employers report employees’ tax and National Insurance (NI) to HM Revenue & Customs monthly. However, PAYE was set up in 1944 and times have changed. The notion of a job for life has vanished and people tend to move jobs more often or have two or three jobs at the same time, so the PAYE system sometimes struggles to ensure that tax codes are up to date.

With the new Universal Credit system due to come into force in October requiring up-to-date information on a claimant’s income, there is a need for a PAYE system which reflects the real time nature of the benefits system changes. This is perhaps more necessary for small businesses who are more likely to employ people part-time, on a temporary basis and pay weekly.

Under the new RTI initiative, employers will have to report NI and income tax deductions every time they pay staff, not just once a month.

How does it affect small businesses?

Luckily, thanks to pressure from ACCA and other bodies, HMRC has delayed RTI for businesses with up to 50 staff until October to give them time to get used to the new system. This means these smaller employers can send information to HMRC by the date of their regular payroll run, but no later than the end of the tax month. Consequently, they may only need to report monthly, even if they pay weekly. This arrangement will remain in place until 5 October 2013. After this date, they will need to fully comply with RTI rules. For small businesses with more than 50 employees, RTI begins on April 6.

It will require a more disciplined approach to payroll from business owners as they will need to provide information more frequently than they have done so in the past. While the focus for any small business should be on growing their enterprise, instead they risk getting bogged down by this constant supply of information. With a high number of small businesses having no staff with any financial qualifications, this could prove a burdensome task for many.

Get up to speed

Although the smallest businesses have some time to get ready for RTI they should start preparing now. All current payroll information on employees should be checked – names,  addresses and dates of birth. NI details should be up to date and any doubts about them should be verified with HMRC. PAYE errors are often down to mistakes in these details.

Although the new RTI system still requires the existing payroll information, there are some additional features, so it might be that current payroll software needs updating.

Information on certain employee benefits, such as medical insurance will be required. Many software providers may be updating their systems anyway to adapt to RTI, but it will be worth checking to make sure.

Universal Credit

The driving force behind RTI is the change to the benefits system due to come into force in October – Universal Credit (UC). UC will be linked to the up-to-date earnings information from RTI which, in theory, should make it easier to correlate benefits to earnings.

When UC begins it will mean considerably more work for businesses to cope with. Under the new system, the employer has a strict requirement to report any change in circumstance relating to the pay of an employee in real time, which sounds simple enough. However, while the monthly PAYE return has a 19th of the month filing deadline, RTI reports, called “on or before” reporting, are in addition to this and allow for changes to an employee’s pay which occur outside of the normal PAYE filing. This is likely to be burdensome and can create a multitude of additional ‘on or before’ filings. While larger companies will be able to cope with this additional red tape, it is likely to have more of an impact on smaller businesses.

All small businesses should prepare now for UC’s arrival and factor in any costs that it may bring.

Seek advice

HMRC has made considerable guidance on RTI available on its website. Seeking professional advice from a qualified accountant may also help small businesses adapt to the new system. There are bound to be teething problems, so having an accountant on hand to advise on the new arrangements will be beneficial. Getting RTI wrong may result in penalties from HMRC.

An accountant will also be able to advise on the wider implications of the new system, such as costs to the business and any issues arising from Universal Credit.


Chas Roy-Chowdhury

Chas is Head of Taxation at ACCA.

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