RTI for small and medium-sized businesses

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Small and medium-sized businesses will be required to operate Real Time Information (RTI) from April 2013. Steve Wade, director of international executive services, tax and pensions at KPMG explores the issues affecting small and medium-sized businesses from the implementation of RTI

In our previous article in this series we looked at the issues affecting large businesses and RTI. In this article, we consider the implications for small and medium businesses.

Business characteristics

HMRC defines small companies as those with fewer than 250 employees but it's useful to look at companies that also:

  • have only one payroll;
  • do not have dedicated payroll professionals;
  • do not have multiple benefit providers;
  • do not have separate computer HR and Payroll systems;
  • prepare annual or quarterly payrolls; and
  • do not have automated new joiner or leaver processes.

The essential characteristic of such employers is that RTI implementation will be the responsibility of one or at most a few individuals within the company. These individuals will have to ensure they (or their payroll provider) have RTI compliant software and gather all the information required to operate RTI.

The real deadline

During October employers outside the RTI pilot will receive a letter from HMRC explaining that they will join RTI in April (unless they agree a different date with HMRC). In fact it is expected that all small and medium business who are not already in the pilot will join RTI in April 2013 (and not October 2013).

This will recommend you check your employees’ details and that you contact your software provider or payroll bureau/agent.

Compliant software

As with large employers, it will be essential to put in place the correct software so that RTI submissions can be made. If your payroll is outsourced you will need to speak to their software providers to find out when it will be upgraded and to ensure any necessary training is received.

The smallest employers may not even license payroll software under the current regulations and therefore will not be receiving an automatic RTI compliant upgrade. Obtaining such RTI compliant software will be an additional cost for these companies.

If the payroll is outsourced then the issues raised in the previous article apply equally here. It is important to check with the payroll provider that they will be fully RTI compliant and to understand what extra data they will require from you.

Employer Alignment Submissions

An Employer Alignment Submission (EAS) to align employee data with that held by HMRC is required if the employer has 250 or more employees. Employers with fewer can make an EAS submission, although it isn't compulsory. The EAS must be submitted before details of earning, tax and NIC deducted etc are reported using a Full Payment Submission (FPS).

If an EAS submission isn’t made then the first FPS submission should included details of all the employees on the payroll even if they are not paid. This first FPS is used instead of an EAS to align the employee data with HMRC’s records. Obtaining the data required for this first FPS will, therefore, be critical and employers should ensure that they have collated all the necessary data so that the submission does not fail

RTI data

All employers are required to provide HMRC with data with every time they pay an employee – this will include cash advances used by the smallest employers unless all employees are paid below the lower earnings limit for NIC. A Full Payment Submission (FPS) may, therefore, be required more often than on a monthly basis (depending on the frequency of payments).

All employers are required to provide HMRC with data with every time they pay an employee – this will include cash advances used by the smallest employers unless all employees are paid below the lower earnings limit for NIC. A Full Payment Submission (FPS) may, therefore, be required more often than on a monthly basis (depending on the frequency of payments).

As with large employers, if employers join RTI in-year, the first FPS will provide HMRC with details of year-to-date payments. You should ensure the FPS matches the payments already made and that all payments previously made have been correctly allocated using the employer dashboard. Also bear in mind that with the withdrawal of the P35, an Earlier Year Update (EYU) will need to be filed after submission of the final FPS for the year.

Pay earnings

 

Businesses need to consider the type and regularity of any payments made to employees, such as salary advances. Some employers pay their employees an amount and pay the tax and NIC due to HMRC on time (ie by the 19th or 22nd following the end of the tax month but their agent calculates this tax and NIC after the employee has received payment). This process needs to be amended under RTI because an FPS including the details of the tax and NIC must be submitted when or before the payment is made to the employee – not on or before payment of tax to HMRC.

This equally applies to company directors. The company needs to determine the nature of any payments to a director before payment to determine whether RTI should be operated.

Carers, nannies and domestic staff

Although payments by employers to carers to provide services to a disabled or elderly person in their home are not included in RTI, payments to nannies and other domestic employees are included in RTI.

Quarterly payments of tax and NIC due under PAYE

Companies who make quarterly PAYE payments (for example either a modified payroll under Appendix 6 or because the PAYE payments are less than £1,500 per month) may need to change their procedures. Although the tax and NIC due will continue to be paid on a quarterly basis, the FPS submissions will be required whenever payment is made to the employee i.e. monthly, weekly or more frequently. Such employers should ensure they are prepared for this additional administrative burden.

Penalties

Please see my previous article for details of penalties for non-compliance under RTI. Further details of the penalty regime are expected by the time the draft Finance Bill is published on 11 December 2012.


 Steve Wade

 

 

Steve Wade is director of international executive services, tax and pensions, at KPMG  

 


 

The remaining articles in this RTI series to will cover RTI for accountants/agents, RTI Penalties and RTI anomalies

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