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HMRC’s new RTI system successfully went live on 6 April, and all employers are now mandated to report all payroll information under the new system. Employers now have to report employee details, year to date figures and payments made on or before each pay day.
The only exceptions are individuals employing care workers for their well being and those who have religious beliefs that prevent them using computers in business.
The Main RTI Files
There are 3 main types of file that have to be submitted to HMRC electronically:-
Employers Alignment Summary (EAS) – This file has to be submitted before commencing with RTI and assists HMRC with the alignment of data with the employers’ payroll data. It is mandatory for employers with 250 or more employees. For employers with less than 250 employees, they can either submit this file or use their first FPS file as an alignment file.
Full Payment Summary (FPS) -This file contains employee details, year to date figures, and payment information and has to be submitted on or before each pay date. So, a weekly payroll will have at least 52 transmissions each year.
Employers Payment Summary (EPS) - If you have adjustments to make to your gross PAYE liability, for example, reclaiming Statutory Maternity Pay, or have Construction Industry (CIS) recovery, an EPS file will need to be submitted between 6 and 19 of the month following the pay period.
It is important to note that HMRC systems are now all date driven, therefore files must be transmitted in the correct ‘window’ and dates and pay periods shown on them must be correct otherwise you may receive under payment notices even though you may have paid the correct amounts of PAYE due.
Following discussions between the Customer User Group (CUG) and HMRC, two easements were announced prior to the ‘go live’ date.
Where employees are paid ‘on the day’ and the employer does not know the amounts before hand, the employer will have seven days to submit the FPS file. This easement may be useful for Farm Shoots who pay beaters on the day, Harvest workers on farms and Pubs & Clubs who pay bar staff at the end of a shift for example.
For Employers with less than 50 employees, who pay their staff weekly but then process the payments on a computer system monthly, they can now submit the FPS file monthly when the processing is carried out. This easement will be in place until October 2013 when it is expected that these employers will then be reporting weekly.
Discussions are going on with HMRC to extend this easement for the full year if not indefinitely.
Some Potential Problem Areas
The Armstrong Watson Payroll Bureau joined the RTI pilot in November 2012 and has been submitting hundreds of RTI files for clients and advising clients with their own in-house systems.
Generally the system has been working well, but, as with any new system, there have been some issues to resolve, and procedures to clarify.
What the new system has highlighted is the large number of payrolls currently being processed in the wrong tax period, primarily weekly, but also two weekly, four weekly and some monthly payrolls. We have found some weekly payrolls two weeks adrift of the correct pay period. HMRC publish the pay periods and correct dates for these and it is important that payrolls are processed in line with these otherwise PAYE payments may be allocated to the wrong periods giving rise to potential underpayment notices. If your payroll is being processed in the wrong period, you should take steps to correct this – not always an easy task!
If you have both weekly and monthly payrolls using the same PAYE scheme, whilst you can submit multiple FPS files, HMRC will only accept one EPS file for a PAYE scheme. This means that any adjustments to the PAYE liability will have to be amalgamated on the single EPS file so you should make sure that your software allows you to do this. If one payroll is processed by a bureau and you process the other, you will have to decide who will submit the EPS file.
Employers who pay all employees below the National Insurance contribution thresholds, do not require a PAYE scheme, and do not need to report details under RTI. HOWEVER, if any employee has, say, two jobs, they may need to be taxed at basic rate, therefore tax will need to be deducted so a PAYE scheme will be required and then all employee details will have to be reported under RTI. It is essential to ask employees to answer the P46 questions to establish their tax status.
Watch out for any PAYE schemes that have been set up for Construction Industry schemes. If you have no employees you may still have to still submit nil returns in the form of EPS file submissions.
Director only and annual schemes are still causing some confusion. Annual schemes are still allowed, although, at this time, HMRC are unable to change existing schemes to annual because of a technical glitch. An annual scheme must have all employees paid annually on a set date in the year
Director only schemes, where the director is paid just below the National Insurance contributions lower earnings limit, should be processed and an FPS file transmitted on or before each pay date. The pay date in this case may well be the date that money is credited to the loan account regardless of whether or not the Director actually draws the money. This can be annual if there is just one credit to the loan account, or weekly, monthly etc. Dividends of course are outside of the PAYE process.
If payments to your employees are irregular or seasonal, you have to advise HMRC when no payments are due with an EPS file. You can enter a ‘period of inactivity’ on the EPS for a period of up to six months. You cannot submit a period of inactivity in the same period as the inactivity, it has to be done in advance.
RTI removes the requirement to submit the annual P35 and P14 returns, but P60’s still have to be produced for employees.
In month 12 (or week 52), if no EPS file is required (ie no PAYE adjustments), then the FPS file is simply marked ‘Final FPS’), the declaration is completed (old P35 questions), and the file is submitted.
If an EPS is required, the FPS is transmitted as normal, and the EPS file is transmitted after the 6 April, marked as final. Note that this has to be submitted to HMRC by 19 APRIL.
If you are not already reporting under RTI, you really need to start now as a matter of some urgency. If you are not sure what exactly you need to do, we can advise you of the options available to you.
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