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Real-Time Information (RTI) is the system employed by HMRC for the reporting of payroll information, which requires employers and pension providers to provide detailed information to HMRC every time employees are paid.
Under RTI, the employer is required to submit information; including details of earnings and the tax and NIC deducted whenever a payment is made to an employee. The requirement is to report ‘on or before' a payment is made.
If no payments have been made in a month it is necessary to submit a nil return, otherwise HMRC may raise estimated liabilities.
Employers can not report any later than the end of the tax month (5th).
RTI links with Universal Credit
One of the reasons that the RTI system was introduced is as a result of the introduction of the Universal Credit benefit system, which seeks to simplify the system for making benefit payments to the unemployed or low earners. Under the new Universal Credit system and using the RTI information submitted to HMRC, it should be possible for the benefit payments to be calculated and adjusted for claimants based on their earnings each month, rather than the former system which often lead to errors and abuse. It is estimated that the Universal Credit system will reduce fraud and error by £2 billion over five years.
However, it is possible that claimants will need to contact those operating the payroll if there is a discrepancy between their pay received and the amounts that the DWP have recorded as pay, as on some occasions, data transfer is not absolutely accurate.
HMRC increases its monitoring
RTI also makes the monitoring of PAYE much easier for HMRC as the information is up-to-date and accurate. This allows HMRC to more promptly identify and pursue those businesses that have unpaid PAYE during the year, avoid recalculations at the end of the tax year and permit HMRC to issue penalties for late payment as soon as the employer becomes liable for one.
RTI summary
Undoubtedly RTI impacts the way information is collated and communicated with HMRC. The main changes and challenges are:
Forms P60 and P11D
Forms P60 and form P11D are still required to be completed, but may be submitted to employees electronically.
Being prepared
Employers with nine or fewer employees are able to use the free HMRC software package, which is compatible with the requirements of RTI but you may find has limited interaction with your software. Unfortunately the RTI system is enforced by further penalties, which are now an inevitable mandatory feature of the UK tax system.
Late-filing penalties
Late returns under RTI attract a penalty each tax month, based on the number of employees on the payroll.
HMRC levy penalties on a "risk based" approach, and for those making later returns for the first few times, with a good track record, they are sent warning notices known as "Generic Notices" (GNs). These are automatically generated by the system to warn employers that they are not fully compliant and can help employers focus on what they need to do to meet the requirements of RTI.
The following monthly rate of penalty will be charged if any of the returns (including a nil return) is filed late in the month:
First return in a year filed late (apart from annual schemes making only 1 return a year) | No penalty |
Thereafter: based on number of employees | |
1-9 | £100 |
10-49 | £200 |
50-249 | £300 |
250 or more | £400 |
Late payment of PAYE and NIC also attracts a penalty and interest is automatically charged on late payments. Automatic late payment penalties are sent out on a quarterly basis, charging a penalty for late payments for monthly payroll, as follows:
Number of defaults | Penalty % (of total amount paid late) |
1 | 0 |
2,3,4 | 1% |
5,6,7 | 2% |
8,9,10 | 3% |
11 or more | 4% |
The imposition of late payment penalties remains risk assessed rather than automatic for an unspecified period.
For guidance on the implementation of RTI, please do not hesitate to contact us.
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