What is RTI?
Real Time Information, or RTI, is the new system that HMRC is introducing to improve the operation of PAYE. RTI will mean that PAYE information is collected and submitted to HMRC every time an employee is paid.
RTI begins on 6 April 2013 although some companies are already operating RTI as part of a pilot scheme that was set up in April 2012 and some of the very largest companies have been able to delay starting RTI until October 2013.
So what has changed?
Under the current system, employers complete an end of year return (Form P35) which gives HMRC details of earnings and any statutory payments made to employees in the previous tax year. The P35 also gives details of PAYE tax, National Insurance Contributions (NICs) and Student Loan repayments due for that year. The P35 is due by 19 May following the tax year to which it relates.
Under RTI these details will be provided to HMRC on line every time an employee is paid, by means of a Full Payment Submission (FPS). The FPS is due on or before the date on which payment is made. Additionally, an Employer Payment Summary (EPS) must also be submitted if no payment is made on the usual pay date or to report statutory payments like SSP (Statutory Sick Pay) or SMP (Statutory Maternity Pay).
Has anything stayed the same?
Yes, the way that PAYE and NIC is calculated has not changed (though some of the thresholds have been updated for the new tax year).
By collecting information about PAYE and NIC due throughout the year, HMRC will be able to monitor payments due based on the previous months’ information and collect late payments more easily and quickly.
HMRC will also use any information collected to ensure that workers are paying the right amount of tax and NIC and to provide accurate records of wages and hours worked so that any benefits can be calculated correctly under the Universal Tax Credits system which will be introduced across the UK in October 2013.
How does it affect my business?
If ClearSky Accounting currently looks after your payroll then we will take care of all of your RTI requirements. In our previous emails we’ve explained that we will need to work more closely together to makes sure that all submissions are accurate and submitted on time. We’ve made all the necessary changes to our payroll software to make sure that from 6th April 2013 everything will run smoothly.
If you use a payroll bureau or a book keeper, or you operate your own payroll system using payroll software, then from April 2013 you will need to make sure that your payroll provider is ready for RTI or ensure your software is RTI ready as each pay day you will be required to submit Real Time Information online to HMRC.
Some companies who operate their own PAYE scheme and report to HMRC manually will be required to begin making online submissions to HMRC from 6 April 2013.
As part of our service, ClearSky can ensure that all HMRC Real Time Reporting is completed as well as managing your PAYE scheme and, if required, prepare the payroll for yourself and your employees.
I pay myself the minimum salary that Clearsky recommended – does my company still have to comply with RTI?
This is so that HMRC can provide detailed information to the Department for Work and Pensions to ensure that benefits and credits are calculated correctly. This will be important under the new Universal Tax Credit scheme which will be introduced in October 2013.
My workload varies and I don’t have a fixed number of hours that I work each week. What would happen in my case?
For RTI purposes your working hours would be based on your expected working hours averaged over the year.
For ease, hours have been banded as follows:
- Up to 15.99 hours per week
- 16.0 to 29.99 hours per week and
- Over 30 hours per week
To enable us to comply with the new legislation without increasing the costs of our service we are asking our clients to adopt one of three regular payment dates if they wish ClearSky to make the submission on their behalf.
We will handle all your RTI submissions for you as part of your package but we do need you to adopt a regular payment date. The options are 14th, 21st or 28th of the month.
If I choose a payment date, what month does it relate to?
The payment would be for the same month, so if you choose to pay yourself on 28th, your April salary will need to be paid on 28 April.
I usually pay myself on the first of the month
To enable ClearSky to process RTI submissions on your behalf without increasing our costs we ask you to select one of three payment dates, 14th, 21st or 28th of the month. We would therefore ask you to bring your payment date forward to the 28th of the preceding month to minimise disruption to your present routine.
Why have you suggested that I set up a standing order for my payment date?
This suggestion means that you do not have to remember to make a bank transfer each time you pay yourself or any employees.
As the RTI submission can be made on or before the payment date, we will prepare this 7 to 10 days in advance of your payment and send you a payslip to confirm the agreed net wages and PAYE and NIC due.
What happens if I’m on holiday on my chosen payment date?
If you set up a standing order your payment will automatically be made whilst you are on holiday.
But I only pay myself when I receive payment for my monthly invoice
There are a few options here that you could think about.
If you are able, keep one month’s salary in your account or move your salary payment date to allow for your invoice to be paid and clear your bank account. You could pay a combination of a quarterly salary and regular dividend payments. We would suggest that you discuss this with your Personal Accountant if you are considering this approach.
Alternatively, once you have raised your invoice, you could pay yourself on account of your monthly salary by way of a loan from the company. At the end of the month, say on the 28th, you could pay yourself your total salary and at the same time repay the loan to the company. You will need to make sure that you do this promptly and the amount loaned to you by the company does not exceed £5,000. If you want to look at this option you should speak to your Personal Accountant.
I still want to pay myself weekly. How will this work?
There are two options here. You could opt for a monthly salary option and we will make a return under RTI for your salary payments a month in advance. Once the company has designated a net salary for the month you can draw your required amount each week or at any other interval which suits you.
Alternatively you could pay yourself weekly on account of your monthly salary (on the 7th, 14th and 21stof the month) by way of a loan from the company. At the end of the month, say on the 28th, you could pay yourself your total salary and repay the amount advanced back to the company. You will need to make sure that you do this promptly and the amount loaned to you by the company does not exceed £5,000. If you want to look at this option you should speak to your Personal Accountant.
What happens if I want to change my pay day?
Just let us know what you want to do two weeks before your usual pay day. This is so that we have time to update your information and let you have a payslip in good time for you to make your next payment and for ClearSky to make an RTI submission on or before the new payment date.
I need the flexibility to pay myself whenever I choose
We would suggest that you adopt a monthly salary option so that we can make a return under RTI for your salary payments a month in advance. Once the company has designated a net salary for the month you can draw your required amount at whichever interval suits you. If you do this you may wish to ensure that your company always has sufficient funds to cover your salary and any Employer’s National Insurance due for the month ahead.
You could, as an alternative, pay yourself on account of your salary by way of a loan from the company. At the end of the month you could pay yourself your total salary and repay the amount advanced back to the company. You will need to make sure that you do this promptly and the amount loaned to you by the company does not exceed £5,000. If you want to look at this option you should speak to your Personal Accountant.
If, for any reason you decide not to pay yourself or you want to make a payment that isn’t in accordance with the salary level you chose at the beginning of the tax year you need to let us know two weeks before the payment is due and that will give us time to let HMRC know.
What happens if I don’t give you two weeks’ notice to change my payment amount?
There is a risk that we will make an incorrect RTI submission. If you haven’t paid yourself, HMRC will be expecting more tax and NIC than is due. If you change you payment amount, they will be unable to match your tax and NIC payment to that expected.
In either case we would need to submit a corrected return and may need to charge you £25 each time we do this for you.
My bank doesn’t do same day payments so how will the payment date match the RTI submission?
Delays in payment reaching your personal account should not be a problem. It will be the date on which the payment is sent, not the date it clears the recipient’s bank account that will count.
What if I can’t pay my monthly salary due to lack of funds?
You would need to advise us at least two weeks before your chosen payment date if you will not be making a payment in accordance with the salary level you have chosen at the beginning of the tax year so you may wish to ensure that your company always has sufficient funds to cover your salary and any Employer’s National Insurance due for the month ahead.
If you can’t do this, let us know two weeks before the payment is due and that will give us time to let HMRC know.
What happens if I decide to pay myself before the agreed payment date, or I need money for an emergency?
Under RTI not only do we need to make the submission on or before the payment date but we also have to give the payment date so, whilst there would be no problem if the payment takes a day or two to find its way from the company’s bank account to your own, there is no further leeway in the timing of the payment.
You could consider making a loan from the company and repay this from your next monthly salary. You would need to make sure that the loan does not exceed £5,000 and that this is paid back promptly to avoid any interest and NIC charges. Please speak to your Personal Accountant before you do this.
If you have sufficient profits, you may be able to pay a dividend to provide additional funds between salary payments. You would need to speak to your Personal Accountant to check the position before drawing any dividends.
In the recent survey you mentioned paying an annual salary – can I take this option?
Yes, if you would like to take this options we’ll need to make special arrangements with HMRC so please let us know as soon as possible.
If my contract ends and I have to stop paying myself what happens if I get a new contract and start working again?
If you should find that you need to stop your salary payments then you would need to let us know two weeks before your usual pay date. We would then arrange for “nil” submissions to be made until such time as you need us to reinstate your salary. In the same way we would need you to advise us two weeks before your RTI pay date that your salary payments were due to recommence.
My contract is caught by IR35. Will anything change?
On a practical level, no. We will calculate a deemed salary for you and you should adopt this as your monthly pay as you do already. We will make the RTI submissions on your behalf each month.
At the end of the year when your accounts are prepared we will calculated the deemed salary for the year and compare this to the salary you have paid. We calculate any balance of PAYE and NIC due, exactly as we do now. The only difference is that we would advise HMRC of any difference on an Earlier Year Update (EYU) submission.
You suggested setting up a standing order but I pay my salary through BACS
Certain payments under BACS arrangements involve additional obligations under RTI but these apply only where it has been necessary for you to apply for a Service User Number (SUN) from your bank. SUNs are normally only required if you make a significant number of payments. You would first have to have obtained approval from your bank for Direct Credit transactions and then specifically requested a SUN, so you should know if you have one.
If you don’t have a SUN then the additional obligations won’t apply to you. If you do have a SUN then please let us know so that we can advise you further.
When do I have to pay the PAYE and NIC to HMRC?
There is no change in the dates you need to pay tax and NICs to HMRC. If you pay HMRC monthly the tax and NICs due for April would have to be paid over by 19th May unless you pay electronically when it is the 22nd. If you pay HMRC quarterly payment would be due by 19th July or on 22nd July if you pay electronically.
Will I still get a wages summary?
We will now let you have a payslip showing the gross and net wage together with any PAYE and NIC due to HMRC. We will email this to you 7 – 10 working days before your chosen payment date.
The wages summary that you sent for the current year shows different amounts of net salary, tax and NIC. How will I know what to pay myself?
Under RTI we will be able to account for directors’ National Insurance contributions using the “alternative arrangements” approved by HMRC. This means that, if your salary remains at the same level each month, you will pay the same amount of NICs each month.
The tax deducted each month, as at present, will also remain at the same level each month unless there is a change of tax code and this will mean that you should be able to set up a standing order for a fixed amount.
What if I want to add a new employee?
Simply let us have the P45 or P46 in the same way that you would now and let us know their annual salary. We will set up a record for them under your company and let you have a payslip 7 to 10 days before their wages payment is due.
What if an employee leaves?
You need to let us know and we will prepare a P45 exactly as we do at the moment. HMRC will then be aware that your employee has left and will know not to expect any payments.