20 per cent VAT 2012 budget 50% return accountancy accountancy fees accountancy services accountant accountant B accountants accounting for dividends accounting records accounting software accounts accounts software administration annuity annuity rates Autumn statement avoid inheritance tax avoidance of tax avoiding inheritance tax bank lending basic personal allowance BCC big picture book keeping Bribery Act British Chamber of Commerce BS7858 budget budget 2011 Budget 2012 budgeting business business accounts online business advice business cash management business confidence business continuity business continuity management business continuity plans business cost management business efficiency business exit business exit planning business finance business friendly business funding business goals business growth business investment business loan business management business owners business performance business plan business planning business record keeping business records business sale business success business succession planning business survival business tax planning business tips bwe based account cash flow Cash flow forecast cash is king cash management Cash-based accounting cashflow chancellor chartered accountant chartered accountant Birmingham chartered accountants chartered financial planner chartered financial planner Birmin child savings children’s savings choosing an accountant client entertaining Cloud accounting Company Tax returns compliance industry contractors IR35 corporartion tax Corporation tax credit control credit control procedure cyber attack cyber crime cyber insurance cyber security cyber threats data security data security. IT security debt collection debt recovery despite some of the bad press over recent years director’s loan account directors loan directors pensions Directors’ loan account dividends doubl Dragon’s Den dragons den Economic expansion EIS email security employee data security Enterprise Investment Scheme enterprise zones entrepreneur Entrepreneur’s relief entrepreneurs entrepreneurs relief ethical hacker Everyone needs to finance their retirement and exit planning finance finance management financial advisor financial difficulty financial forecasts financial freedom financial goals Financial management financial plan financial planner financial planning financial planning checklist financial planning tips financial wellbeing FSTE 100 FTSE100 fund manager gifts global markets growth growth finance HMRC HMRC enquiries HMRC enquiry HMRC IR35 guidance HMRC tax enquiries HMRC tax enquiry home loans how to manage time ICAEW IHT income tax income tax r income tax relief income tax return independent financial advisor information security information security management inheritance tax inheritance tax planning insolvency Institute of Chartered Accountants investing Investment investment advice investment diversity investment in marketing investment management investment options investment philosophy investment planning investment portfolio investment risk investment strategies investment volatility investments investors IR35 ISO 27001 ISO 27001 benchmark ISO 27001 consultants ISO22301 ISO27001 IT security Jimmy Carr jobs keeping the books key perfirmance indicators key performance indicators KPIs kpi's late payment penalties late payment penalty fines late payments legal tax strategy management information management meetings management standards managing data security marketing investment miscalculated tax motivating staff national lottery new years resolution online accountancy online accountancy software online accounting on-line accounting online accounting software online accounts online tax return online VAT return outsourced accountancy outsourcing outsourcing accounts overtrading owner managers Parker Management Consultants partnership agreements passwords Pay off mortgage PAYE paying a dividend Payroll penetration testing pension pension contribution pension contributions pension fund Pension funds pension investment pension investment strategy pension scheme pensions pensions forecast per personal allowance trap Personal financial plan personal financial planning personal guarantees personal pension personal pensions personal tax return plumbers tax safe plan pre pack administration private pension profitable business sale R & D tax credits R&D tax credits recession red tape reduce tax remote working report on economy research and development tax credits retirement retirement planning risk risk return safest passwords Saga sareholder protection cover security of websites Seed Enterprise Investment Scheme SEIS selecting an accountant Self assessment self assessment tax return self invested personal pension selling my business selling your company shareholder agreements shareholder protection SIPP SIPPS small business small business owners small business tax small businesses small firms SME SME business management SME marketing SME tax planning SMEs social media policy SSAS start up start-up stock market succession planning tax accountant tax affairs tax avoidance tax breaks tax charges tax code tax disclosure tax enquiries tax enquiry tax evasion tax investigation tax investigations tax liability tax man tax mitigation strategies Tax planning tax planning advice tax planning schemes tax reduction tax reform tax relief Tax return tax saving tax saving strategies tax savings tax strategies Tax tribunals taxation tax-break time management time management skills top rate of tax tough times UK Bribery Act UK economy VAT increase vat return VAT rise VAT submission web based acc website security when to pay a dividend work-life balance Xero Xero accountancy software Xero accountants xero accounting xero accounts Xero accounts service

Real Time Information - the biggest change to payroll since 1944

Add to: Digg Add to: Del.icio.us Add to: Facebook Add to: Furl Add to: Google Add to: Live Spaces Add to: MySpace Add to: StumbleUpon Add to: Twitter
Wednesday April 3, 2013 at 9:00am

PAYE (Pay as You Earn) is the system whereby income tax and national insurance is deducted from an employee’s pay by their employer and paid over to HMRC on the 19th of the following month. The employee receives their salary net of tax and national insurance. The system must be effective because it has changed little since 1944. The key point of the system is to deduct tax and National Insurance before the employee has chance to spend it.

However, with effect from April 2013 HMRC will radically improve the system thus making it less susceptible to fraud and hopefully make it quicker to fix errors. Change to the system is also needed to support the new Universal Credit system intended to streamline benefits payments. It will also provide the Department of Work and Pensions with income details of everyone, including those claiming benefits.

Real Time Information for all SME’s from April 2013

The new system will be called Real Time Information (RTI) and as you could probably guess from the title, every time an employee is paid and hence PAYE and NI becomes due, that information will be transmitted in real time to HMRC.

It is in the employer’s interest to get the information transmitted accurately the first time round. This is because each transmission will be compared with HMRC data held on the National Insurance and PAYE Services (NPS) database. It is not clear what happens if the data does not match, however filing online will become difficult and the next step is an HMRC compliance check. This is another good reason to ensure you have HMRC tax enquiry insurance in place.

More work for the employer

You may wonder what HMRC does, after all most taxes are collected by the taxpayer - VAT, PAYE and self assessment being cases in point. With RTI the employer is going to have to do more work still in order to avoid a mismatch of data under the more stringent new rules. It may be necessary to check new employee details against passport, birth certificate or Department of Work and Pensions documentation. Apparently it is quite commonplace for employers to use obviously incorrect details such as A N Other, Dummy1. Or AA000000A for names and National Insurance numbers.

What will be stricter under Real Time Information?

  1. It is not unknown for individuals, typically directors, to be paid by bank transfer and then the payroll records updated at the end of the financial year. This will no longer be possible as all pay must be reported in the month it is paid.
  2. Backdating payroll information to put good an overdrawn loan account will again not be possible as the payroll record is created when the transaction actually takes place, not when the paperwork is dated.
  3. It will be interesting to see how this develops but there is an argument that a debit to an employee loan account is actually a payroll payment that has not been correctly documented. Hence a properly constituted loan agreement with the company would be a sensible course of action when a loan to an employee is created.
  4. People paid under the NI threshold such as a part time spouse working in the business will no longer be able to simply enter the transaction in the accounts of the company and put the payment on the year end P35. Each payment must be properly reported under RTI.
  5. Should a company become insolvent and there be a large overdrawn loan account to a director the excuse that this is a payment in lieu of salary will be much harder under RTI. Again the payment to the individual should be reported to HMRC as it is made and not when the company goes into liquidation.

It will be interesting to see how RTI works as it is a huge responsibility for companies to get right from the start. This is especially true as HMRC have implemented the change across the board for all SME companies with no real support or lead in period.

If you are struggling with Real Time Information (RTI) or concerned about overdrawn loan accounts talk to your accountants now. You only have until the end of this month before your first RTI return must be filed.

Andy Parker
Chartered Accountant, Birmingham

Comments on this post:

There aren't any comments for this post yet. Why not be the first to comment?

Share your experiences:

Your Name  
(to appear with your comment)
Email Address  
(will not be published)
Comments:  
Human Validation Check  
In the box below, please type the characters that you see in the picture. This helps us to ensure a real person (and not a crafty computer!) is submitting this form.

Enter the code shown to the left:

Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here