Important changes are taking place in the payroll process that will affect HR data and processes.
From April 2013 HMRC will use Real Time Information (RTI) to improve the operation of the PAYE tax system and ensure that recipients of the new Universal Credit receive the right amount of benefits every month relative to their pay. It will provide more accurate and up-to-date information on employees and pensioners, which can be a particular issue for those with multiple jobs, a mix of pension and employment income, or those who frequently change jobs.
As part of a pilot scheme, around 1,300 employers will move to RTI in July 2012, with HMRC assistance. After that, between November 2012 and March 2013, up to 250,000 more will be encouraged to join on a voluntary basis. Then, between April and October 2013, it will be compulsory for employers to move to RTI.
Once RTI becomes a reality, many of the forms filled by employers annually – such as P35 and P14 – will be abolished, while the P46 and P45 forms for starters and leavers will still be filled out for employees but do not need to be sent to HMRC. It is estimated that the reduction in paperwork around the end of the tax year will save employers in the region of £330 million in administrative costs every year.
Under RTI, employers will report tax and NICs deductions at the same time as they pay their employees, rather than at year- end. It will mean filing an electronic return, containing data similar to the current year-end returns to HMRC, at the end of each payroll period.
Key HMRC data must be captured for each employee when setting them up on the payroll as it will no longer be possible to submit a P14 at year-end with the missing information.
The following data must be captured accurately as part of the payroll process:
- Full name – forename(s) and surname. HMRC has three fields for names – first, middle and surnames. Where present, HMRC would expect employers to provide correctly spelled names in full (eg ‘David’ instead of ‘Dave’). Titles and letters after the name must be separate from the above name fields.
- Actual date of birth in the format dd/mm/yyyy. You should not use a default date of birth. You should make every effort to obtain the correct date of birth for the individual.
- National Insurance number. RTI-compliant software should allow for the National Insurance number field to be left blank if the National Insurance number is not known, but you must provide the employee’s address.
- Passport number. The passport number must be provided only if the employer or pension provider collects it as part of their checks of entitlement to work in the UK or receive a UK-based pension.
The most challenging piece of information to collect will be the National Insurance (NI) number, especially for those organisations that employ foreign nationals who will be required to apply for a NI number. To minimise delays in receiving this information a new NI number verification service will be introduced by HMRC as part of the RTI roll out.
RTI reporting will become an integral part of an employer’s normal payroll activity. When employers run their payroll the software will gather the information required (tax, NICs and other deductions) and send it to HMRC. This will be done using the internet through the Government Gateway or by using Electronic Data Interchange (EDI) on or before the date payment is made.
What does HR Need to Do?
- Talk to your payroll software supplier to discuss whether the software you are using will be RTI compliant.
- Review your current HR and payroll processes to ensure that you will have all of the information to make your Full Payment Submission each month.
- Identify if there are any gaps in your current payroll reports to ensure that elements of your data is checked and correct prior to your Full Payment Submission.
- Encourage users to validate information by checking official sources, such as HMRC / Department of Work & Pension (DWP) / Passport documents or birth certificate.
- Educate users on how system reporting facilities can be used to validate data to identify possible errors.
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