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Preparation for the introduction of real time information (RTI) aimed at improving the operation of PAYE has moved on a step with HMRC’s publication of draft amendments to regulations relating to PAYE, National Insurance contributions (NICs) and the construction industry scheme (CIS).
Phased introduction of RTI will begin in April 2012 with a small group of employers who have agreed to take part in an initial pilot. Subject to the success of this pilot, the Revenue will increase the number of employers joining RTI during 2012/13.
The department envisages firms that are not in RTI during 2012/13 will be required to join from April 2013. The only exemptions follow the current provisions for employers whose religious beliefs are incompatible with the use of electronic communications and individuals who employ carers to provide services to a disabled or elderly person in their home. These employers will be permitted to provide RTI on paper.
Under the new system, employers will be required to submit an RTI return to HMRC each time an employee is paid. The idea is that a single return will cover all employees paid at the same time, provided they are all on a single payroll.
The regulations state that employers must assign a reference number to each payment to an employee using a ‘specified electronic payment method’.
The employer will also have to pass on such information to the provider of the electronic payment service and include a reference number in the RTI return relating to that payment. The aim is to ensure that, where a payment is made through a specified electronic payment method, HMRC will be able to match RTI returns to the payments employers make to workers.
Currently, when employees leave or join an employer, tax information is reported to the Revenue using forms P45 or P46; this will not be necessary under RTI. Information will be reported to the taxman on RTI returns as a matter of course.
For leavers, it is proposed employers will pass information to employees on a ‘leaver statement’, which could take a different format, such as a final payslip. At the end of the tax year, employers in RTI will no longer have to submit P14 or P35 returns.
HMRC will retain the option to require these returns if necessary, but this would be used only as a contingency during the pilot period. Employers will still need to provide their employees with P60 end-of-year certificates.
The policy intention in setting the penalty regime for late filing in the year 2012/13 is to strike the balance between the need to enforce the reporting of information and the collection of tax, against the recognition that employers will be entering into agreements with HMRC to submit RTI during the pilot.
For 2012/13, the final RTI submission of the tax year will be treated as equivalent to the P14/P35 end-of-year return, and penalties for late filing will apply as they do now.
However, from 2013/14, penalties will also apply for late filing of RTI data during the year, and further legislation will be published for comment in due course.
The simplified PAYE deduction scheme was intended originally to offer a simpler PAYE system for employers of domestic employees, but HMRC intend to phase out the scheme. No new employers will be able to use it after 6 April 2012, and it will be closed down from April 2013.
During informal consultation, a concern was raised that some employers may struggle with the delivery of returns via electronic communications,; during 2012/13 new employers who would have used the scheme will be able to use the current exemption from electronic PAYE filing to submit paper returns. From 2013/14, they will be able to use the proposed option of monthly paper filing under RTI.
The amending draft regulations are open for comment until 9 January 2012.
One element of the draft amendments to the PAYE regulations relies on HMRC acquiring a new power to include in the regulations provisions that require employers to give certain information about payments of wages or salaries to their banks and for the banks to pass the data to HMRC. The government intends to include this new power in Finance Bill 2012.
