For UK employers, Real Time Information (RTI) represents a significant change to the way payroll deductions, including PAYE and national insurance (NI), are being reported to HM Revenue & Customs (HMRC).

The current system has not changed since the 1940s when employees rarely moved jobs and only had one main source of employment.  Fast forward to the present day, the work place is very different with increasing job mobility and a greater casual labour work-force.

HMRC argue that the current system of reporting payroll deductions six weeks after the end of the tax year, through the submission of end of year P35 and P14 forms, is no longer fit for purpose and they’re probably right.

Under RTI, employers will be informing HMRC of tax, national insurance, pension and other deductions on or before an employee is actually paid.

HMRC claim that over time the benefit of receiving this information sooner will enable the right amount of tax and NI to be collected from individuals and will remove the need for time consuming end of year reconciliations. In addition, the administrative burden of preparing and submitting the end of year forms P35 and P14 will no longer be required.

Furthermore, RTI’s introduction also supports the “universal credit” benefits initiated by the Department of Work and Pensions, which is due to commence in October 2013.  This will ensure that claimants receive the correct amounts and on a timely basis.

Although HMRC state that RTI will mean cost savings to employers, the cynics will point out that RTI’s main objective is to improve HMRC’s own cash flow and by knowing exactly how much tax and NI is due to them each time a payroll report is run, HMRC can immediately start issuing demands following non-payment.

For all employers, RTI will mean an upgrade to their present payroll software and a “data cleansing exercise” to ensure that employee information, including full names, dates of birth and national insurance numbers, are accurate and match the records held by HMRC -HMRC have commented on the large number of inaccurate employee details held by employers who joined their RTI pilot. This will represent yet another cost and administrative burden on the poor employer.

There are also some significant difficulties in operating RTI under the current guidelines.  For example, are payroll staff expected to work weekends to ensure an RTI submission can be made before casual bar staff working on a Saturday night can be paid?  We wait with bated breath for some practical guidance to be issued over the coming months.

Interesting, the UK is one of the first of the OECD countries to implement a Real Time reporting process with the other members looking on with intrigue to see how it all unfolds.

One thing that is certain, is that employers should start the process of planning now.

HMRC are intending that most employers will join RTI by April 2013 and by October 2013 all employers will be operating their PAYE system under RTI.

If you have any further questions regarding RTI or need further clarification as to what is required please contact a member of the Goodman Jones  payroll department or e-mail paye@goodmanjones.com.