Changes to the PAYE system will have an immediate impact on SMEs as businesses are required to report monthly tax information on employees. Neilson Watts from Sage UK explains the changes and what they mean for your business.
Real Time Information represents the biggest shake-up in the way businesses report payroll in more than five decades, requiring employers to start providing employee PAYE, National Insurance and Student Loan information to HM Revenue & Customs at point of payment every month, rather than just at year end.
What is RTI?
The fundamentals of running a payroll, such as calculating tax and National Insurance contributions, how and when you pay employees and the HMRC, remain unchanged.
However, businesses must be aware that the frequency they report and submit payroll information to HMRC has changed and they need to look at how to comply.
What does it mean for construction firms?
The Pay As You Earn system has changed very little since it was introduced in 1944. Real Time Information, or RTI, is a new system that HMRC is introducing to improve the operation of PAYE and is a key change that construction firms need to be aware of and act upon, ensuring their software will enable them to comply with regulation.
Not only will this system support the introduction of Universal Credits under the government’s benefits form, it also aims to fundamentally improve the overall operation of PAYE.
By increasing the regularity of reporting, it enables HMRC to respond more efficiently to errors that lead to the under- or over-payment of tax and should ultimately minimise the administrative burden of Payroll Year End.
“Real Time Information represents the biggest shake-up in the way businesses report payroll in more than five decades”
The existing Construction Industry Scheme payment and reporting process does not change. Employers will continue to complete and file monthly returns (CIS300) due under the existing CIS arrangements.
Any limited company acting as a subcontractor and that has suffered CIS deductions will need to report these amounts to HMRC on an Employers Payment Summary submission under RTI; this will be deducted from the amount of PAYE due to be paid to HMRC.
RTI will be introduced to all small businesses in April 2013 and will be mandatory for all employers by October 2013.
HMRC has been running a pilot programme with many of the key software providers since April last year, so it can ensure the programme runs without a hitch.
This includes businesses of all sizes and sectors, and many have found the process to be fairly straightforward given the right preparation.
Preparation is vital for RTI and businesses must accommodate the change.
Neilson Watts is associate product manager at Sage UK