Real Time Information – RTI
Payroll services generally include calculating wages and salaries, overtime pay, commissions and/or bonuses, holiday pay and legal payments. Employers also calculate both tax and insurance using the Pay As You Earn or PAYE system.
The PAYE system was first introduced in 1944, and since then, it’s been the system that many employers use to pay income tax and deducting National Insurance Contributions before issuing employee wages. In the upcoming year, however, new changes are being introduced to the current system. Starting April 2013, the HM Revenue & Customs or HMRC will implement a change to the current PAYE system known as Real Time Information.
Since its introduction in 1944, the PAYE system stood as a way for employees to pay income tax and insurance contributions once an employer deducted the payments from their pay before before their wages were issued. The HMRC has found it difficult to keep using such a straightforward system.
Many factors like identity fraud, errors and corrections for issues like overpayment prevent the HMRC from receiving information in an efficient and accelerated manner. The Real Time Information system aims to change the aforementioned issues.
Starting in April 2013, employers will have to make their electronic PAYE/NIC returns to the HMRC for employees before or on their allotted pay dates. Instead of sending the information with their corresponding end-of-year tax returns, employers will also be required to send data about PAYE, NIC and other financial-related information like the number of hours worked and student loans each time they pay employees.
The Real Time Information system will also introduce some much needed simplification for most payroll services. In conjunction with its corresponding Universal Credit system, any type of employee wages will now be calculated when paying benefits of any kind. The RTI system calculates net Universal Credit payments, applying the appropriate scaling to gross payments for employees. This system means that an employee won’t have to report to the HMRC about changes to their earnings amount.
The HMRC may also require additional information when an employer pays tax and NICs. This allows the HMRC to check and highlight errors or other issues, in addition to checking the accuracy of the soon-to-be paid tax.
The HMRC conducted a trial run with the soon-to-be proposed Real Time Information changes. The trial started in April 2012; since then, the HMRC will start requesting all employers to make RTI submissions to HMRC once April 2013 arrives.