The implementation of RTI has overall been a success, although many might disagree. Over 99% of all live employments records are on RTI, with the majority of employers submitting their RTI data online.
The exceptions (under specific circumstances) are accidental employers who employ support or care workers; they must submit their RTI to HMRC but can do so on paper. Employers who have a religious objection to using technology can also submit on paper. A small number of employees who are based in the UK but work for foreign employers may submit their own PAYE information to HMRC.
The alternative options to filing online will only be available until April 2017, when employers will either have to submit online or use a third party to do so on their behalf.
One immediate benefit for employers is the national insurance number verification request (NVR) service, which will confirm or trace an individual’s NI number once their first full payment submission (FPS) has been submitted.
Another benefit is that finalising the end of the tax year is simpler, although around 10% of employers failed to indicate that this was their final submission for the year and as a result did not answer the six questions (previously shown on the P35) which finalises the return.
According to HMRC, some employers did not submit a month 12 FPS or an employer payment summary (EPS). This may have resulted in 20,000 P800s being issued erroneously since 15 September. HMRC is investigating the matter and has also confirmed that not all of the earlier year updates (EYU) submitted by employers have been processed either, so we will have to await the outcome.
However, HMRC has also been reviewing its internal processes for issuing the P800s to make the process faster and less of a burden for individuals.
The cost to employers of implementing RTI has exceeded the amount anticipated by HMRC. This may be because the process takes employers longer, meaning that additional staff are required, or because software costs are higher than first thought.
BACSIP users, in particular, found that they incurred additional costs upgrading their BACS software to include the required hash total which enables HMRC to match payments against an employer’s FPS. The average cost of upgrading is thought to be around £3,000 or more per employer, but only affects BACS payers with a service user number (SUN).
The issues surrounding RTI can be divided into three main areas: HMRC errors, software errors and operator errors.
RTI has been a challenge for the software industry, particularly the frequent changes. For example, employers are required to indicate on their FPS the normal number of hours an employee is expected to work. These are divided into bands. An additional band was added from April 2014, which has moved ‘other’ from band D to E. This band is used for pension payrolls and zero hour contracts. Please check that your software has been updated and that it is not automatically selecting ‘other’ regardless, as this information is being used in the assessment of state benefits.
Although RTI does not change how the PAYE and NIC are calculated, many of the day to day procedures employers use have changed under RTI and this is where operator errors occur. One particular issue is where a former employee is re-employed during the tax year and the employer uses the employee’s old payroll number. A new payroll number must be issued if the payroll number is used as the payroll ID for RTI purposes. If you are changing all employees’ payroll numbers, then this must be indicated on the FPS or duplicate records are created by HMRC.
The biggest problem is reconciling PAYE charges with HMRC. HMRC has stated that only a minority of employers is unable to reconcile the amount of PAYE due with HMRC’s Debt Management and Banking Department (DMB), but that is estimated to be 13,000 employers.
This is due to a variety of reasons. Unfortunately, PAYE charges are not updated onto the business dashboard in real time, only twice a month on the 6th and 20th. So there is an inconsistency between what the employer believes he owes DMB, the dashboard and DMB’s own system, which does not show a breakdown.
If an employer has no employees to pay for the month, it must notify HMRC on the employer payment summary (EPS); otherwise, DMB will estimate the PAYE charge. If a nil payment EPS or an FPS is not submitted within seven days, then the estimated charge becomes due. Employers are sent a generic notification (GNS) by HMRC if no EPS or FPS has been received, but as some have been sent in error there is a danger that some employers will ignore those sent correctly. HMRC sends out between 3,000 and 10,000 GNS messages a day at peak times.
Another example of operator error is where the employer is due to pay his employees on 25 September. He runs the payroll on 15 September and submits his FPS and EPS files on 15 September. He shows the payday on the FPS as 15th not 25th and unfortunately, because the EPS has been sent too early (due 19 October), HMRC allocates the PAYE charges to an earlier tax month. The early submission of the EPS has been resolved by the addition of the tax month field to the EPS from October. The period of inactivity also increases from six months to 12 months.
One particular issue which may have far reaching consequences is when an employee changes their home address. Although the employer amends his payroll system and submits the updated information on the FPS, HMRC will not accept the change of address until they are notified by the individual.
This may cause a problem when the Scottish rate of income tax (SRIT) is introduced in April 2016. This is because liability to pay SRIT will largely depend on residency and can be based on the individual’s home address that is held on HMRC’s system. It will be up to the individual, not the employer, to contact HMRC if liability to pay SRIT is in dispute.
Automatic late filing penalties were due to be introduced for all employers from October 2014. HMRC has deferred the automatic penalties for those with fewer than 50 on the payroll until 6 March 2015, so only 59,000 larger employers are currently affected. Small employers should not be too complacent, though. HMRC has the power to penalise all employers now for filing late, just not automatically. Some penalties can be avoided by employers using the new correct late reporting code on the FPS if for example they are adjusting an earlier FPS.
Look out for the consultation on the future of the P45 and how the processes can be improved due out later this year. Finally, a word of warning: don’t assume centralised deductions have gone away. They may have just been put on the back burner, as some within HMRC believe that this would solve their coding problems.
