Real Time Information Proposed for UK PAYE

 

In order to collect income tax and National Insurance payments (NI) from employees' wages and salaries,  For the purposes of managing a PAYE system, all UK employers are required to register with HMRC. If an employee's earnings are at or over the income tax threshold or the lower earnings level for NI, they must register.

Calculating tax deductions using a tax code system is part of administering PAYE. Each employee has a tax code assigned to them that represents their personal tax allowance and any unusual circumstances unique to that employee are denoted by a letter in the tax code.

The financial tax year in the UK lasts from April 6 through April 5 of the following year. Then, each tax year is divided into 12 monthly intervals and 53 weeks (with an allowance for odd days at the conclusion of the tax year).

Since the PAYE system is in effect, over 90% of employees are exempt from filing a self assessment tax return. Additionally, it means that for the majority of PAYE taxpayers, there is no need to recalculate their tax status.

The PAYE system was used to collect $225 billion in tax, NI, and student loan repayments during the tax year 2008-2009. The cost to collect this was close to $2 billion ($1.2 billion for HMRC and $0.7 billion from enterprises).

A discussion paper titled "Improving the Operation of Pay As You Earn (PAYE)" was produced by HMRC in July. This centred on reducing the amount of time needed to submit data to HMRC in order to save money for both the employers and HMRC. Additionally, it aims to enhance customer service for both employers and employees.

"Real Time Information" is described in depth in the document (RTI). It is envisaged that this be the method by which contacting HMRC by phone will automatically collect its data regarding tax and deductions each time a payroll is run. If employees are paid by Bacs, it is anticipated that the RTI data input will be integrated into the Bacs transmission procedure.

Currently, companies must file year-end returns at the end of each tax year; however, under RTI, employers would be forced to provide information whenever they conduct their employees' periodic pay runs, whether those runs be weekly, fortnightly, or monthly. At the time they hand over the deductions to HMRC, employers must also supply information about employer NI payments.

The document also introduced "Centralised Deductions," a potential future PAYE modification (CD). In the event that this is implemented, HMRC would take over the calculation of tax, national insurance, and deductions from employers.

Following the meeting in July 2010, it was decided that RTI will commence its staggered introduction in 2012. However, it is unlikely that changes to the PAYE procedure in terms of CD will begin until 2015.

The following is the planned RTI timetable:

• From April 2012 to October 2012, a sample of employers were tested.
• System modifications from October 2012 to January 2013 as a result of initial and subsequent testing
• Beginning in January 2013, large employers will begin using RTI.
• RTI is used by medium employers beginning in April 2013
• Starting in August 2013, small businesses will begin using RTI.
• October 2013 - The process is finished

A new discussion paper titled "Improving the operation of Pay As You Earn (PAYE): Collecting Real Time Information" was released on December 3, 2010. the P35/P14 annual submission process would not be required; RTI submissions will be tied in to bank or Bacs payment software; small employers (less than 50 staff) who do not pay by Bacs will be able to submit using other software or an agent; it is not anticipated that the PAYE payment date will change; and other proposals were included in that document.

Read: How Your Accountant Can Help With HMRC

The advantages of such a system, according to HMRC, include more timely information that enables it to collect more employee taxes early in the year rather than later; a decrease in inquiries to HMRC; a better system for information transfer when someone changes jobs; less administrative work; and better debt management for employers.