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Real Time Information (RTI): forthcoming changes in payroll

In April 2013, how you tell HMRC about the payments and deductions you have made under PAYE changed.

The stressful Year End process of P35 and P14 was replaced with more frequent submissions each time you pay your staff. This is called Real Time Information, or RTI, and it changed how payroll is processed. We've put together this little guide to tell you what you need to know, and to answer some common questions.

What didn't change under RTI?

PAYE stayed the same - using tax codes, deducting tax and National Insurance and calculating pay all works in the same way it did before. How you tell HMRC changed, not what you are telling them about. Coding notices, messages from HMRC, when you pay HMRC, P60s and P11s all work in the same way they did in the past, as does reporting a change to HMRC (such as a change in name or address).

What did change?

How and when you tell HMRC about the pay and deductions you have made changed. When RTI started, you had to send HMRC a Full Payment Submission (FPS) that shows the tax, NICs and other deductions on or before the payroll for that period is run. So if you have a monthly payroll then information about each employee must be submitted to HMRC each month. This information is probably collected automatically by your payroll software, and sent to HMRC online. Forms P35, P14 and P38a are no longer needed at the end of the year - instead of a full year end submission, you'll just tell HMRC that you are running the final pay run for the year as you process it. New starters still bring a P45 from their previous employer, but these are no longer be submitted to HMRC. Instead the new starter's PAYE information is included in the next regular RTI submission when she is first paid. If the new employee does not have a P45 you can still get her to fill in a P46 form and make this the basis of the RTI data submitted for this employee.

What do I need to do to prepare for RTI?

Before you make your first submission to HMRC, you will need to check the information you hold about your employees. This is necessary so that HMRC can check that the details it holds about employees in your company are correct, a process that is known as 'alignment'. Here are some tips from HMRC to help you get the information right:

• Employee Name
  • Always provide the individual's full and official forename(s) and not just their initial(s).
  • Make sure that forename(s) and surname are in the correct order.
  • Check that you have spelt the names correctly. For example, enter 'John Smith' and not 'J Smith' or 'Smith J'. Include a middle name if the person has one, for example 'John Michael Smith'. Simply putting an initial such as 'J Smith' makes it difficult to trace the correct account. Check an official document to ensure that you have spelt the name right - 'Smith' and not 'Smyth'.
• Date of birth
  • Always provide the employee's correct date of birth. Do not enter a default date or guess the date of birth.
  • Check that the date of birth is in the correct format: enter the day, month and full year of birth in the format 'DD/MM/YYYY'.
• National Insurance Number
  • Make sure you have the right National Insurance number.

What other information will be submitted to HMRC?

On your first RTI submission you needed to provide details of all employees who had been employed by you at any time during that tax year, including those who had left. All currently working employees are included in RTI submissions regardless of wages. Even employees earning below the Lower Earning Limit (£107 per week or £464 per month for 2012-13) who didn't need to be reported to HMRC before RTI, under RTI must be included. (This is to support the introduction of Universal Credit when information about small earnings will be required.) For each employee you need to provide the following additional information:

• Hours worked each week
  • For each permanent employee you need to enter the number of hours regularly worked each week. Employees on contract lengths less than 49 weeks have their expected weekly hours recorded as belonging to one of four bands: band A= less than 16 hours, band B=16 to 29.9 hours, Band C=30 hours or above while Band D is designated 'other'.
• Whether employee is being paid at irregular intervals
  • If employees are not going to receive any payment for three months or more you must set an 'irregular payment indicator' on the last payday for that employee before the period of non-payment. If the irregular payment indicator is not set HMRC will assume that the employee is no longer employed by you after three months have elapsed. This flag should also be set for employees on maternity leave who opt to take the extra 13 weeks unpaid maternity leave after the 39 weeks paid leave have finished.

On current RTI submissions you do not include employees who have left your employment earlier in the tax year, but only those who are still on your payroll.