Making Sense Of ‘Real Time Information’
Jason Piper on revised rules for staff payroll and pensions
Real Time Information (RTI) and pensions’ auto-enrolment are giving businesses of all sizes some real headaches. Last year saw the biggest shakeup in the operation of employee payroll since the launch of PAYE in 1944 as HMRC moved to an entirely online, real time, filing system and took every employer in the country with it.
One of the biggest issues is the timing of the submissions to the system. The rules for RTI still demand submission of payroll information ‘on or before’ any actual payment to an employee, which is (comparatively) easy if you just do a single monthly payment run, but less so if you’re employing regular casual and short term labour.
Real Time Information issues: The general consensus seems to be that RTI has imposed some extra costs, and things are definitely still not running smoothly.
According to HMRC, problems include duplicate employments resulting in overstated tax bills. Here, some employees’ details have been submitted in slightly different forms to HMRC and the system has assumed they are separate employees, with tax due on both.
Another issue revolves around the Full Payment Submission (FPS) – the main payroll return – not being passed to HMRC’s accounting systems quickly enough, resulting in understated, or missing, bills. The tax will turn up on the system eventually, but not in real time.
There are several things businesses need to watch out such as HMRC not receiving the right number of Employers Payment Summary (EPS) returns. These are used to report statutory payments to employees such as sick pay, maternity pay etc. and can be used in place of an FPS where there has not been the need to deduct tax or NIC from any employees in the payroll period. Incorrect information causes this too.
Payments to leavers are a problem too. Some software might initially make final payments of salary appear to be ‘payments after leaving’, which are treated differently.
And less helpfully, ‘miscellaneous employer error’. One example HMRC gives is of an employer attempting to pay their gas bill under the PAYE references; unsurprisingly, the amounts didn’t tie up.
Pension auto-enrolment: But there is something else that is lurking around the corner that could be even worse than RTI.
Pensions auto enrolment is an even bigger shake up than RTI and it actually imposes an extra financial burden on taxpayers.
All the signs are that the pensions industry has registered how great a burden auto-enrolment is going to be on their systems, and has responded accordingly.
Auto-enrolment is a new scheme where employers will have to automatically enrol an employee into a workplace pension if the employee is earning over a certain amount (currently £9440 a year) and the employee is aged between 22 and state pension age.
While the employee will have to pay in a percentage of their earnings, in most cases, the employer will also have to pay into the employees pension.
Between now and February 1, 2018, every employer in the country will have to join the regime – and while the smaller a firm is, the later the date will be, the Pensions Regulator website reckons firms should allow 12-18 months to prepare for enrolment, as there’s a lot of information that will be needed.
Meanwhile, the big pensions companies are implementing their own restrictions on employers. Most of the big providers are now saying that they will need four to six months notice to set up a new scheme.
Moreover, because auto-enrolment will inevitably lead to far more ‘low value’ contributors, paying in tiny amounts but costing the same to administer as higher contributions, there are several schemes which will impose an administration charge on the employer if contributions fall below a certain level – typically £100 per month.
One way or another, auto enrolment is going to have cost implications. Estimates vary, and of course every business will be different, but as an indication of costs, research by the Centre for Economics and Business Research suggests and average for small businesses of £8,900 to enrol, and for medium sized employers with up to 100 employees costs of £12,600 would be typical. They identified 33 separate administrative tasks that every business will have to carry out, and reckoned this could take up to 103 days to complete.
The penalties for non-compliance start at £50 per day for the smallest employers, and rise to up to £2,500 daily if they have more than 50 employees on their books.
There’s a 12 page guide on the pensions regulator website which gives an overview of what firms need to do. Check out the website:
Jason Piper is technical manager for tax and business law at the Association of Chartered Certified Accountants.
This article has been reproduced from the Contract Flooring Journal website. You can find them at www.contractflooringjournal.co.uk.