It might not be the career-defining change programme you wanted to lead, and it certainly isn’t going to be the most glamorous project you ever work on, but the implementation of Real Time Information (RTI) will affect HR and the way it handles payroll and staff data for years to come. Samantha Carter and Jo Faragher report.
Although RTI, whereby most companies must start reporting PAYE information to HM Revenue and Customs (HMRC) in real time from 6 April 2013, is one of the biggest changes in tax reporting, a recent survey by PricewaterhouseCoopers (PwC) found that many employers expected their payroll software provider to handle it.
More than half (52%) of respondents said that they expect their payroll provider to supply the support required for RTI, despite one company in four believing that its software provider had not yet finalised their RTI-compliant software. A similar amount (53%) did not even know whether or not their provider’s software was compliant.
From April, businesses with fewer than 5,000 employees will have to report in real time; those with more will begin to do so from June this year. HMRC recently announced it was relaxing its RTI requirements for very small businesses (with fewer than 50 staff). These will have until 5 October to get their systems in order.
The idea is that payroll software will calculate PAYE and send this information to HMRC each time an employee is paid. This will not only simplify the PAYE process, but will tackle fraud in a more effective way and streamline the way data about new starters is collected.
Consequently, end-of-year summary forms submitted for each employee (known as P14s and P35s), will be replaced with full payment submission (FPS) forms, which will need to be completed each time an employee is paid to highlight any adjustments or errors.
Does PAYE change? According to the HMRC, the use of RTI will not change PAYE in the first instances, but HR and payroll professionals beg to differ. Helen Hargreaves, senior policy and research officer at the Chartered Institute of Payroll Professionals (CIPP), says: “Although HMRC’s assertion that PAYE hasn’t changed is fundamentally correct, there are areas in which payroll professionals may need to change their processes to meet the new RTI requirements: even something as basic as engaging a new employee, where employers will need to obtain a starter declaration from the employee, irrespective of whether they have provided a P45 or not. It’s these little details that mean employers must not be complacent about the new reporting regime.” |
However, in order to meet these reporting requirements, employers will face a number of challenges such as ensuring they are collecting the right data, considering where it will be stored and how it will be transmitted, and assessing whether or not their software is compliant. It’s not enough to assume your payroll provider will do this for you, so what does HR need to know about RTI?
1. Is your software up to the job?
Hundreds of thousands of businesses will be converting to RTI, and software issues will take up time and resources for many HR departments. The existing system will need to be updated and tested, and every department will need to use a payroll provider for their real-time reporting. HMRC has listed a number of vendors it recommends and has tested for compliance.
Make sure you have a conversation with your payroll provider about what they are doing towards compliance and whether or not there will be any additional support costs. John Harding, human resources director at PwC, says: “Payroll providers need to make it clear to their clients the extent of their capacity to provide support and the associated costs. Employers should not underestimate the challenge of meeting the requirements of both RTI and auto-enrolment by April.”
2. Data accuracy is key
As with any major new data-related project, the quality of what you put in is in direct proportion to what will come out – so make sure you get it right.
“Data quality is critical to HMRC, so it is imperative that businesses have robust processes to ensure their employee data is accurate and up to date, ready for RTI,” according to Andrew Hayward, managing director at software provider M-hance. “More than 80% of data-quality issues are the result of inaccurate or missing employee information, typically relating to an individual’s national insurance number, date of birth and full name.”
Whether they are new starters or long-standing employees, it will help to communicate with employees on this issue and transfer some of the responsibility onto them to provide accurate data.
3. There will be new data to report but some will stay the same
Although some of the original key information is still needed (employees’ personal details, hours worked, annual leave), there will also be additional information required. This could include details of lower paid, temporary and casual staff, hours worked, changes to employee working patterns, new starters, leavers and contingency plans. These must be added to your “to-send” list each time you report in real time.
That said, not everything is changing after RTI is implemented. Coding notices, reporting changes to HMRC, payment dates, P60 forms, and expenses and benefits will stay the same after 6 April 2013.
4. You won’t get fined yet
HMRC recognises that not every HR department will have enforced real-time reporting changes immediately. There will be no penalties for late-filing until April 2014. To help employers understand when fines apply, HMRC will send warnings, where applicable, from October 2013.
5. Accommodate for extra costs and time
HR departments will need to factor in extra costs for running the project, the time and cost of acquiring or inputting additional employee details, software system upgrades, process mapping and staff training.
John Harding, |
Olivia Hill, head of HR at Association of Accounting Technicians (AAT), says it is important that HR professionals consider these administrative costs: “HR will need to communicate the changes for internal processes to employees as soon as possible to reduce the administrative and costly burden this no doubt will have [on HR].”
6. Don’t start yet!
HMRC technology cannot take delivery of live RTI for the 2013/14 tax year until 6:00am on 6 April 2013. Early submissions will be rejected and the process will need to be started again. Some software providers have offered trial runs, so that may be something worth looking into.
7. Data security is up to you
Some HR professionals argue that data security is something that will be missed when they move to RTI. Charles Cotton, performance and reward adviser at the CIPD, says the security of data is essential and is ultimately in the hands of the HR department. “Effective security practices within payroll and HMRC can, perhaps, be assumed. However, as an employer introduces more comprehensive and systematic ways of collecting, storing and supplying data throughout the organisation, the accessibility of that data unavoidably increases.”
8. We’re a small business, what should we focus on?
Businesses with more than 250 employees will need to make an employer alignment submission (EAS), to align their data with that held by HMRC, before they make their first full payment submission. Small and medium-sized businesses (SMEs) with fewer staff will not be required to do this, but still need to understand the impact of the new reporting requirements and consider what mechanisms they will use.
Olivia Hill, head of HR at AAT, says SMEs should be more concerned about RTI than larger businesses: “Our research clearly indicates that smaller businesses, sole traders and micro businesses that don’t have a finance division or a HR function remain completely oblivious and have little or no understanding about the impact this could have.”
9. RTI could make things easier to manage, eventually
After reporting PAYE in real time, paying employees on a frequent basis (such as weekly/ two weekly) may be something to reconsider. Think about changing to a monthly payment in order to reduce the number of RTI submissions – this is likely to eliminate mistakes, save valuable HR resources and reduce costs. Such a move, however, would require a variation in contract and be subject to agreement with employees.
10. More efficiency means lower costs
Despite the additional costs likely to occur in most businesses, RTI is something that could keep costs down for many HR departments in the future, so it’s worth keeping the bigger picture in perspective. Cotton explains: “Employers will no longer have to face the ‘bureaucratic burden’ of the end-of-year reconciliation process, and may also perceive benefits from the general good practice of maintaining accurate and up-to-date information – in addition to the potential to dovetail RTI of PAYE with a more holistic approach to managing reward data in real time to meet the demands of the modern workplace.”
In the meantime, it’s important to communicate with any departments or external stakeholders involved in the move to RTI. In the early stages at least, HR will need to keep communications between payroll and the HMRC fairly constant.
For more information, see XpertHR’s coverage of PAYE.
XpertHR’s PAYE FAQs
When do employers have to start operating real time information for their PAYE reporting?
Sign up to our weekly round-up of HR news and guidance
Receive the Personnel Today Direct e-newsletter every Wednesday
What changes are being made to PAYE reporting by the provisions on real time information?
Do all employers have to use real time information for their PAYE reporting?
