Written by Jonathan Norris of Crunch Accounting on 15 July 2013
Back in April, at the beginning of the 2013/14 tax year, HMRC caused a moderate stink amongst accountants and businesses with the introduction or Real Time Information, or RTI. This new scheme was designed to modernise the way PAYE payroll information was filed for all UK businesses (except Sole Traders, who were mercifully spared).
PAYE filings have been submitted yearly since the system was set up back in the 1940s, and with the Coalition Government’s “digital by default” initiative in full swing, HMRC thought the system could do with a refresh.
The nuts and bolts
Rather than annual paper returns, under RTI payroll and tax information must now be filed online “on or before” every single payday - meaning a regular business paying their staff on a monthly basis must now file twelve times a year instead of once.
In theory this pre-emptive filing will mean that the information HMRC holds on UK taxpayers will always be completely up-to-date. This will enable tax payment shortfalls to be identified earlier, and overpayments to be calculated and rebated quicker.
HMRC initially demanded all businesses begin operating RTI by April 7th 2013, but eventually granted a reprieve to smaller businesses, who now have until April 2014 to ensure compliance. There will also be no financial penalties for incorrect RTI filings in the first year, to help ease businesses into the complex new regime.
According to a survey conducted just before RTI came into force, two thirds of accountancy firms were planning to increase their fees as a result of the extra work and software updates required to ensure RTI compliance.
These increased fees have proven especially problematic for freelancers and contractors, who lack the deep pockets of larger companies. Those who choose to do their own accounts were forced to learn how to file RTI submissions through HMRC’s clunky “Basic PAYE Tools” software. Small firms with in-house accounts departments were also subjected to costly software updates.
Thankfully, the worst seems to be behind us now. Most of the bugs in the RTI system have been worked out, and those businesses that failed to meet the deadline are slowly moving over as HMRC’s financial penalties get ever closer.
In the not-too-distant future RTI compliance will be a given for any bookkeeping or accounting package, but while the system is still in its infancy it’s wise for business owners to remain vigilant. Non-compliant packages are still on the market, and many providers hide their RTI costs in separate payroll packages that you won’t know about until after you’ve already purchased.
How you actually ensure compliance will depend on your employment status and how your company is set up. In the case of part- or full-time employees, the responsibility lies with your employer. Sole traders, as mentioned above, are exempt from RTI and can continue reporting their income on their annual Self Assessment.
For limited company freelancers who manage their own accounts, RTI filings must be made through a compliant payroll package, or manually through HMRC’s ‘Basic PAYE Tools’ software.
Limited company freelancers who have an accountant to look after their books should find their accountant will take care of their the extra work - although often for an additional cost. Shopping around for an accountant with RTI costs included is a prudent move.
Watch out for accountants who attempt to move your payroll from a monthly to an annual scheme - this is done purely to minimise their own workload, and has been so widespread that HMRC has had to crack down on companies switching.
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