Changes to UK payroll regulations

Real Time Information (RTI) obligations are set to come into force in the UK from the start of the next financial year (6 April), meaning firms will be obliged to report PAYE information to HMRC in real time.

Research from the UK Forum of Private Businesses (FPD) has revealed that with less than a week to go, 18% of firms in the country are still not prepared for the change to the way they report financial information to HMRC. The new requirements - which represent the biggest change to PAYE since it began in the 1940s - mean that HMRC will be able to ensure the correct deductions of tax and national insurance (NI) are made on a weekly basis, with correct code numbers applied and, in most cases, preventing both under and over payments of tax.

What will change?

All employers will be required to use RTI from 6 April 2013. This means that employers (or their accountants) will have to send details to HMRC every time they pay an employee, and at the time they pay them, using payroll software to send this information electronically as part of their routine payroll process.

Under the new system, employers will not be required to provide forms P35 and P14, nor will they have to submit P45 (1), P45 (3), P46, P46 (Expat) or P46 (Pen) for starters and leavers. This is because all the information included on these forms will be included in the Full Payment Summary (FPS) within the new RTI systems. A P45 for leavers will be continued to be issued.

An Employer Payment Summary (EPS) will also be required at the end of the year if the employer finds, after reconciling the FPS returns, that there are changes to be made that should be advised to HMRC.

What won’t change?

There will be no changes to the way in which tax and national insurance contributions (NICs) are calculated under the new system - this is purely about how the records are accounted for. Employees will still be required to give employees the End of Year form P60, and P11Ds will still need to be submitted. Additionally, the dates by which employers must pay PAYE remain the same – 19th or 22nd of the month (or quarterly equivalent).

Compliance

HMRC has announced a soft approach for the first year of RTI, and penalties will not be applied for late submission of FPS files. However, incorrect FPS files may still incur penalties. The last RTI submission of the year will be treated as normal end of year submission and the same penalties will apply for late filing. Additionally, penalties for incorrect returns and interest on late payments will still apply.

From April 2014 penalties will apply for late filing of RTI during the year.

How we can help

We have incorporated the new payroll processes within our company so we are fully compliant with the new regulations. The onus will still be on the employee to advise any changes in circumstances (e.g change of name address etc) to HMRC; the monthly/weekly/quarterly FPS will reject if the information in the file does not line up with the information held by HMRC.

 
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