RTI one year on. What have we learnt?
In this article, Simon Parsons, Director of Payments, Benefits & Compliance at Ceridian looks at the roll-out of RTI, the challenges faced, and what has been learnt in the last year.
The anniversary of the introduction of the most fundamental change to Pay As You Earn (PAYE) has now passed. Between April and October 2013, UK employers were compelled by law to interface with HM Revenue & Customs (HMRC) electronically under what is termed Real Time Information (RTI).
Employers are now required to report to HMRC on, or before, making payments to employees. The vast majority have complied with a small percentage of exceptions nationally.
How has it been and what have we learnt?
RTI has been a seismic shift in the payroll world. From a former view of making significant payroll correction at Year End, employers have had to face submission of accurate data from the beginning and throughout the year.
At Ceridian, April 2013 saw a major implementation project of thousands of employers moving from what was In-Year electronic exchange of starters and leavers, to the new submission of financial and personal data every time a payment was made.
For the vast majority of employers the transition has been straight forward with little issues. Tax Year End 2014 will have been seen as relatively easy with little to do. All is well when the data is correct!
However, a small number of employers (HMRC state this to be around 1% of all employers, so that is 1 in 100) have experienced a level of difficulty for a variety of reasons. Some of these will be viewed by HMRC as employer error, other are clearly HMRC error, and then there are the nuances of visibility of actual historic payroll practice that may not have been well predicted as occurring or impacting RTI.
The initial challenge for payroll was obtaining the correct Accounts Office Reference (AOR) to associate with the correct Tax Reference. From personal experience this was a significant challenge, and even to this date we see that employers are finding it hard to identify the correct AOR with it being the most significant reason for RTI rejection. You can get your AOR from your HMRC payment details letter or the payment booklet.
The requirement to report a valid SCON for NIC categories D, E, L N and O is also a significant challenge. This can be obtained from your pension scheme administrator.
Then, HMRC could not handle late corrective data; so change of start date or leaver date has been a real change. This has resulted in the duplication of employee records on HMRC systems, leading to double accounting of tax and NICs owed and the new process introduced to employers of ‘Disputed Charges’. Employers ignored HMRC contact at their peril with some resulting in a Debt Collector turning up at business premises to seize goods and assets, when often the correct amounts had been paid and HMRC records were incorrect due to misapplication of RTI data.
Practices relating to Payment After Leaving (PAL) and compromise agreements, and the resulting tax and NICs implication, proved a challenge for HMRC systems also.
Employers had to get used to the unusual (and in reality unnecessary) Employer Payment Summary (EPS) submission each 19th of the month, to attempt to offset reclaims of items such as Statutory Maternity Pay. The EPS is a facility to cover the lack of sophistication in HMRC calculations, they really should know how to calculate 92% of statutory payments, and even know which employers are entitled to full reclaim and compensation etc. – but they don’t so employers have to tell them.
In the ‘old days’ the critical point of data accuracy was in the Tax Year End submission of P14s. Changing attitudes has been a challenge with some employers content to report inaccurate data for a period of time, thinking it can suddenly be corrected. The area of most difficulty was the change of PAYE reference. Changing a PAYE reference does not correct the prior submissions under the prior wrong PAYE references. The P14 submission is no more, so late notification of change leads to incredibly difficult (for all parties including HMRC) corrective activity. There is no easy way of correction.
As a result of some of the challenges, HMRC had to setup a specialist Disputes Team to investigate and attempt to resolve discrepancies and duplications, with resolutions taking a number of months. HMRC have since delayed the implementation of automated penalties relating to RTI until October 2014.
For the vast majority, RTI has gone well and many will have no sight of any issue. For a few, it has been a disaster, with many hours of anguished resolution investigation.
HMRC have not yet finished the 2013/2014 tax year; the next task to pass is the reconciliation of payments versus RTI reported data versus HMRC application of data on the relevant systems. It will be an interesting few months.
The key lesson is to ensure that accurate information is used first time; guesses and work around may cause significant challenges all around; and delays of accurate information around tax references are fatal!
Has RTI been the predicted success hoped for? Although the Universal Credit roll-out has been slow, the RTI data is shown to be invaluable to the Department of Work and Pensions (DWP) in obtaining accurate information, and surprisingly, the tax payment intake now that employers have to report at each payment point is up by around £500 million pounds. I think the government will see that as success.