Eight week ticking clock for ‘massive’ PAYE tax changes

Posted on 14 Feb 2013 by Tim Brown

Manufacturers are being warned they have fewer than eight weeks to prepare for massive changes in the way payroll (PAYE) is reported to the taxman.

Real Time Information (RTI) is being introduced by HMRC on April 6, 2013 to improve the operation of Pay As You Earn (PAYE) which allows income tax and national insurance to be deducted from employees’ wages before they are paid.

Mitchell Charlesworth accountants payroll manager Joanne Nieman said under the current system employers submit PAYE information to HMRC each May using an electronic version of forms P35 and P14. However, the new RTI system will require firms to send this payroll data to the HMRC online, via the Government Gateway, on or before the date each employee is paid.

“It is vital firms ensure their systems are ready for RTI,” she said. “This is a fundamental change that will particularly affect cash flow. RTI gives HMRC precise data meaning the taxman will know exactly how much is owed by firms and when it is due to be paid. So if a business does not pay the correct amount promptly they will be liable to a penalty.”

In the past some firms will have underpaid their PAYE to help ease cashflow perhaps paying in lump sums over a year. This will no longer be possible without incurring a penalty.

Mrs Nieman said penalties will also be enforced from April 2013 if firms supply inaccurate data including the dates of births and names and addresses of employees on the payroll.

“We are advising our clients to get ahead of the game and start checking their employees’ personal data before RTI is live to help correct any inaccurate or incomplete records,” she said.

Mrs Nieman urged firms to ‘play safe’ and act now to prevent problems with RTI and pointed to a recent Federation of Small Business (FSB) survey of 1,700 members which showed a quarter did not know about the RTI changes and only 16% were prepared.

The new RTI system could be particularly problematic for types of businesses that often engage sub-contractors who will have to make prompt payment to HMRC to avoid penalties. Furthermore any business employing casual workers will have to submit data under RTI even if they have not deducted any tax. Under RTI it is essential that firms have the correct details for these employees.”

Mrs Nieman added that under the latest HMRC guidance penalties for the late submission of RTI data, known as the Full Payment Submission (FPS), will not begin until April 2014. However, the current penalty regime will continue to apply at the year end, with a penalty issued if the relevant P35 and P14 information is not filed by 19 May 2013.