1st September 2014John Atherton0 Comments.3 minutesPayroll
Employee payments used to be reported to HMRC once every 12 months, at the end of each tax year. Now, all pay data is reported to HMRC on or before the date of the payment, using the Real Time Information (RTI) system.
How is RTI sent to HMRC?
Employers (or their payroll provider) use payroll software to send information to HMRC about each employee’s pay and PAYE deductions. PAYE deductions are the system used to deduct tax and National Insurance from an employee’s wages before paying them.
The information is sent in real-time, after the employee has been paid. It’s called a Full Payment Submission (FPS), and is also used to report the final payment made in a tax year, on or before 5th April.
Using RTI returns increases accuracy
Because RTI is a digital system, HMRC have up-to-date information about employees. It makes it easier for HMRC to issue the correct tax codes to employees. Tax credit awards will also be more accurate, based on actual pay received rather than an estimate.
Submitting Real Time Information also reduces the number of people who have under- or overpaid tax at the end of the year.
Benefits of RTI for employers
The introduction of RTI meant a lower administrative cost to employers. According to estimates by HMRC, employers have saved around £300 million a year. Under the old system bosses had to prepare and submit:
a form P35 for each PAYE scheme
forms P14 for each employee, showing the total amount of pay and tax, along with other deductions
The introduction of RTI meant that employers can use the software to calculate employee pay, and then transmit this information directly to HMRC. It leaves employers more time at the end of the tax year to perform other duties.
Some employers make payments using different methods, such as paying employees in cash for each shift. In these cases, HMRC recognises that making a submission on or before each payment would be difficult, so allow up to a week after the payment to report it to HMRC.
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AAT Level 3 qualified, I specialise in providing payroll functions and services for a wide variety of clients and businesses.