Real Time Information: New Changes to PAYE
From April 2013, HMRC is introducing a new way of reporting Pay As You Earn (PAYE). The new RTI system is designed to improve the accuracy of returns, and to ensure that employers are paying the correct amount of tax.
In the current system, employers submit an end of year return to HMRC. Every month, employers deduct income tax and national insurance contributions from the employee’s wages. But the employer only calculates the full tax liability and informs HMRC at the end of the year.
According to HMRC, this system of submitting information leads to employers often paying the wrong amount of tax for extended periods of time.
From April 2013, employers will be required to submit information to HMRC regarding employee pay and deductions each time a payment is made.
So the aim of the new RTI system is to ensure employees pay the correct amount of tax throughout the year.
It is also hoped that RTI will reduce the administrative burden on small – medium sized businesses. The end of year reconciliation should be simpler, and there is no longer a need for P14, P35, or P35A submissions.
What do I need to do?
HMRC advises all businesses to do one of the following as soon as possible:
- get payroll software if you don’t already have any
- update your existing payroll software to a version with this functionality
- use a payroll provider (such as an accountant or payroll bureau) to do the reporting for you
Obviously, you also need to make sure that all employee data is complete and accurate.
You must also register for PAYE Online.
You should seek information about whether the RTI system will effect your business more widely; you may need to change some of your procedures, and provide more information.
Here’s a useful HMRC checklist to ensure you are ready for the RTI system.
You may also be interested in Xero or FreeAgent Accounting Software.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.