1 Feb 2016
Jason Piper
Job Title
A survey by HMRC on what businesses thought of the new real time information (RTI) process found RTI had been a success – but among the good news were some more sobering statistics.
Smaller employers have found the change more difficult, and have been more likely to have to consult HMRC on how to implement the changes. Many of them have encountered difficulties with filing information, or even just getting set up on the system properly. Although RTI is a payroll matter, it’s going to affect anyone owning or managing a practice.
One of the biggest issues, and one which will remain even once all the technology has settled down, is the timing of submissions to the system.
The rules for RTI still demand submission of payroll information “on or before” any actual payment, which is (comparatively) easy if you just do a single monthly payment run, but less so if you’re employing regular casual and short-term labour.
The general consensus seems to be that while RTI hasn’t been a total “car crash”, it has imposed some extra costs and things are definitely still not running smoothly. So what are some of the main wrinkles businesses are seeing?
According to HMRC, issues include duplicate employments resulting in overstated tax bills – some employees’ details have been submitted in slightly different forms to HMRC and the system has assumed they are separate employees, with tax due on both. Another issue revolves around the full payment submission (FPS) – the main payroll return – not being passed to HMRC’s accounting systems quickly enough, resulting in understated or missing bills. The tax will turn up on the system eventually, but not in real time.
There are several things businesses need to watch for, such as HMRC not receiving the right number of employer payment summary returns. These are used to report statutory payments such as sick pay, maternity pay and so on, and can be used in place of an FPS where there has not been the need to deduct tax or National Insurance contributions from any employees in the payroll period. Incorrect information causes this too.
Payments to leavers are a problem too. Some software might initially make final payments of salary appear to be “payments after leaving”, which are treated differently.
The timing of updates to the business tax dashboard, HMRC’s online summary of a practice’s tax position, can be a cause. Practices that don’t use it already should go to www.gov.uk/log-in-register-hmrc-online-services and consider signing up.
And, less helpfully, is “miscellaneous employer error”. One example HMRC gives is of an employer attempting to pay its gas bill under the PAYE references – unsurprisingly, the amounts didn’t tie up.
Of course, practices should make sure they still pay the tax on time, and make sure what they pay agrees with the calculations – RTI hasn’t affected that side of things from a business point of view, it’s just given HMRC more up to date information to check whether payments are actually correct.
And that brings us on to penalties. While HMRC didn’t levy any in-year penalties while the system bedded in, the system now has more teeth. If the amounts practices pay in don’t agree with what’s in HMRC’s system then not only will they have the irritation of getting the sums to agree, but they will also run the risk of paying penalties. Go to www.gov.uk/what-happens-if-you-dont-report-payroll-information-on-time to view these.
Yet there is something else lurking in the background that could prove to be even worse than RTI.
Pensions auto enrolment (AE) is an even bigger shake-up than RTI and actually imposes an extra financial burden on taxpayers. All the signs are that the pensions industry has registered how great a burden AE is going to be on their systems, and has responded accordingly.
Between now and 1 February 2018 every employer in the country will have to join the regime – and while the smaller a firm is, the later the date will be, the Pensions Regulator website reckons firms should allow 12 to 18 months to prepare for enrolment, as there’s a lot of information that will be needed.
Meanwhile, most of the big pensions companies are implementing their own restrictions on employers, saying they will need four to six months’ notice to set up a new scheme. Moreover, because AE will inevitably lead to far more “low value” contributors paying in tiny amounts, but costing the same to administer as higher contributions, there are several schemes that will impose an administration charge on the employer if contributions fall below a certain level – typically £100 per month. While that might sound reasonable in itself, the amounts involved could make the problem very widespread. The very low rates of contributions required as a percentage of salary mean that to be paying in £100 per month, your employee would have to be earning £60,000 per year. For any employees on less than that, you’d either need to pay in more than the legal minimum contributions (to reach the £100 threshold), or accept the administrative charges which are expected to be around £1,000 per year.
One way or another, AE is going to have cost implications. Estimates vary, and, of course, every business will be different, but, as an indication, research by the Centre for Economics and Business Research suggests an average for small businesses of £8,900 to enrol, and for medium-sized employers with up to 100 employees costs of £12,600 would be typical. It identified 33 separate administrative tasks every business will have to carry out, and estimated this could take up to 103 days to complete.
There’s a 12-page guide on the pensions regulator website at http://bit.ly/17kYSeV which gives an overview of what firms need to do. To keep the contributions running smoothly once a practice is set up for AE, it’s going to need to keep reporting information to HRMC. Those that are remodelling their payroll to take account of RTI would find it a good idea to read the AE literature as well; compliance with the regime’s demands is not an option. More importantly, practices will find there’s no point putting changes in now to comply with RTI, which have to be reversed, or remodelled, when they join AE.
