An employer’s guide: payroll law changes in 2013

Posted on 7 Mar 2012
Tax form

From April 2013, a phased introduction of Real Time Information (RTI) will see employers submitting payroll data to HMRC via the centralised registration service for e-Government services in the UK, Government Gateway, on or before payments credit employee’s bank accounts.

These new measures could greatly increase the workload for employers so Ken Davies, director of payroll services at accountancy firm Mitchell Charlesworth explains how the new measures will work.

What is Real Time Information for Payroll?

By October 2013, all employers will have to submit under RTI. However, HMRC will roll out RTI by issuing employers with directives to commence submitting RTI returns from as early as April 2013.

The current system allows employers to issue PAYE information to HMRC at the Payroll Year End using electronic versions of the traditional forms P35 and P60. The new RTI system will require firms to send all the employ’s payroll data to HMRC via the Government Gateway on or before the date each employee is paid.

HMRC have also been floating the idea of employers submitting Online Monthly PAYE Statements to confirm their overall PAYE/National Insurance liability for the month.

This is because employers may have offsets against statutory payments such as Statutory Maternity Pay and Statutory Sick Pay that would reduce liability or tax suffered/deducted under the Construction Industry Scheme that are otherwise reported outside of RTI.

Therefore, come the 19th or 22nd of the month, HMRC will know exactly how much employers owe them.

Paying by BACS?

The government wants to verify that payments made to employees match those within the RTI submission and so a referencing system was devised.

For those who pay employees by BACS, a unique cross-reference (hash) will be required to accompany each payment to employees, which will need to be included in the separate RTI submission to HMRC. If payments are made by cash or cheque, then an RTI submission will still be required but without hashes.

As BACS deal with around 96% of all payments in the UK, the hash will enable HMRC to corroborate the payroll data submitted to HMRC against the payment made to the individual.

This corroboration will assist the Department of Work and Pensions (DWP) with the administration of the Government’s Universal Credit, due to commence October 2013. By providing the DWP with access to the exact details of what earnings, tax and hours of each taxpaying claimant at any given point, the government hopes to reduce the time spent processing claims and prevent the under and over payment of benefits.

How can employers prepare for these changes?

There are four points businesses should consider:

  1. Data Cleansing – submit employee data to HMRC before RTI is live so HMRC can advise correct or incomplete data
  2. Improve and Maintain Data Quality – Make sure you obtain dates of birth, use full names and include addresses when employees are entered on your payroll.
  3. Speak to your payroll software supplier or payroll provider – Make sure they can deliver on Real Time Information
  4. Banking – Are you able to use a file your payroll software generates to submit to BACS using your banking facility?

Assuming your payroll software will be capable of supporting your needs for RTI and you are confident with processing payment files generated by your payroll software then you will need to keep an eye out for your “On Boarding Date” issued to you by HMRC.

The On Boarding Date will be when you are required to file your first submission under RTI, including data to allow HMRC to align their in year and personal data to yours.

How will these payroll changes impact on employers?

There is a lot of merit in what is trying to be achieved by HMRC but there appears to be a disproportionate level of responsibility being placed on employers in a short space of time.

Employers may need a helping hand in being shown how to submit under RTI or import a payment file including hashes from their software rather than keying in individual amounts as they are used to.

The advent of RTI will do away with separate processes for starters and Employer Annual Return Forms P35/P14. HMRC will inititally take a “softly, softly” with penalties for non-compliance so take the opportunity to get things in place now these fines could run up quite quickly once they start to be issued.