This April will usher in a major change affecting all employers in respect of how they provide employee, pay and deductions information to HMRC. Forget ’once-a-year’ payroll reconciliations: from April 6 onwards, employers will need to supply information to HMRC each time they pay their staff either before, or on, the day of payment.
What’s more, the information will have to be supplied in electronic form using compatible payroll software. This isn’t just some ’one-off’ event it will become a routine part of the whole payroll process and if you’re one of those employers who still ’does it themselves’ you’ll be seeing plenty of references to PAYE Real Time Information (RTI), as the Revenue likes to call it.
The introduction of this system does put some additional pressure on employers not least to put right things that perhaps have gone a little slack over time.
Your payroll software will need to be RTI compatible so that it can send the PAYE and related information what they refer to as a Full Payment Submission (FPS) to HM Revenue & Customs.
If you’re using older software you should check with the vendor and, if necessary, upgrade to a compatible version. Naturally, most commercial payroll bureaux will already be running the right software, but smaller payroll providers or employers doing their own may not have caught up yet.
Registering for PAYE Online
Those employers who intend to continue preparing and submitting their own payroll information will need to be registered for PAYE Online so that they can make their electronic returns.
If that’s you, and you’ve not registered yet, you should do so now, because you’ll need to receive your log-in details before you can access the HMRC portal.
One of the basic things that you’ll need to do, whether you produce your payroll ’in house’ or use an external payroll agency, is to update your employee details.
For each employee you must have the correct: full name, including any middle name; gender; date of birth; National Insurance number; and at least two lines of their home address.
That’s information that every employer is already supposed to possess, but in the real world sometimes people take short cuts. Sometimes new staff start without having their full documentation on them, etc. Check your records, and remember that the details that you obtain from your staff should be supported by documentation passport, birth certificate, etc. Of course, this requirement isn’t new, or unique to the new system. There are already many regulations in place to cover this basic employee information, just treat it as more urgent now. However, after April 6, you’ll have to provide HMRC with even more information about your employees, on a regular basis, such as: their employment status permanent, temporary or casual; their payroll ID; their hours worked; and their payment basis regular or irregular.
If you think that there’s something uncomfortably Orwellian about providing this extra information, and doing this every time you run your payroll, you’re not alone. But hey, it’s a long time since 1984
BACS Payment Schemes
Many employers use BACS to make wage and salary payments; if you do so using your own Service User Number (SUN) then your payroll software has to provide a compatible cross-reference (hash) to the RTI system so that correct information is provided about each individual.
As with the payroll software, this is less likely to be an issue for any employer using one of the larger payroll bureaux, or those employers who don’t use their own SUN but, if you are using BACS yourself, rather than through one of these agencies, then you’ll need to speak to your bank.
Starters and Leavers
The introduction of the new system will also lead to changes in the way that employers inform HMRC of new starters or leavers from their payroll. This is not so much from the point of view of the employees they’ll still receive paper P45s but in terms of how and when employers inform HMRC of changes. Essentially, the employer will report all starters and leavers by amending their payroll details, and as these have to be sent to HMRC every time there is a payment, then the information will be supplied at the next payroll run date.
Running the system
Assuming that you’re still intent on running your own payroll system, you’ll need to make some contingency plans in case of computer failure or theft, or loss of internet access, etc, since there will be no alternative way of meeting the RTI deadlines using any kind of paper submission. Even if you don’t pay any employees within a particular tax month, you’ll still have to file an Employers Payment Summary (EPS) by the 19th of the following month, or face a fine. There is no immediate change to the penalties for late submission of PAYE and related returns but be warned that what HMRC refers to as this ’concession’ will be gone by April 2014.
We asked at the start whether you’re prepared for the new PAYE system but really it was the wrong question. If you’re still running your own in-house payroll system the real question should be "Why?". Maintaining and operating a payroll system is one of the most time-consuming tasks in any business. It’s difficult for even the largest companies with dedicated HR teams to keep up with the ever-changing legislation, quite apart from the annual changes to rates and allowances. For smaller employers, it can be a bit of a nightmare. The cost of a fully-managed, outsourced monthly payroll service (including options such as BACS payments) can average out at between £5-£7 per employee, per month. Still, it is your time: but are you sure you couldn’t be doing something more profitable with it?