Spotlight on payroll data

Arts organisations, like all employers will be fully exposed to a dramatic change in the operation of PAYE and NIC, known as real time information (RTI). Its introduction is being phased in: it will be live for medium and large employers (50 or more employees) from this April, and smaller employers will be brought into the scheme from October. The fundamentals of PAYE will be unchanged, such as tax codes, status tests, deduction of tax and national insurance. If anything, the HMRC spotlight will be shone on payroll operations. One of the key drivers is that it will support the introduction of universal credit, available nationally from October.

The vast majority of employers must report their payroll information online using a full payment submission

The vast majority of employers must report their payroll information online using a full payment submission (FPS) for each pay period, with effect from 6 April 2013. All employers are expected to be operating RTI from 6 April 2014. Each time a payroll is run you will need to submit details ofdeductions, such as income tax and NICs, starter and leaver dates if applicable, all employees paid (including those below the NIC lower earnings limit)and all starter and leaver information (P45/P46).

Some employers may be asked to submit a separate submission called an employer alignment submission (EAS) before the first FPS. This is to ensure that payroll records match with HMRC's (payroll alignment). Additional submissions include:

National Insurance number verification request to verify or obtain a national insurance number for new employees.
Employer payment summary to report a reduction in the amount you pay to HMRC or if you have not paid any employees in a pay period.
Earlier year update (EYU) to correct, after 19 April, any of the year-to-date totals submitted in your final FPS for the previous tax year. This only applies to years after you started to send information in real time. The first year an employer can use an EYU is 2012/13.

Employers will still need to be registered for PAYE online because it will be used for sending in certain forms to HMRC, such as returns of expenses and benefits, including P46 (Car), P9D, P11D and P11D(b). This can be done directly from your payroll software if it supports this feature. PAYE online will be used to issue tax codes and notices. Again, your payroll software may support this feature.

HMRC has identified that over 80% of data quality problems are caused by holding the incorrect information about an individual such as their full name or national insurance number. Things can go wrong when an employee only works for you for a very short time or they do not have documentation giving their correct number. Data accuracy is critical to the operation of RTI (and to avoid penalties).

The vast majority of employers and pension providers will be subject to on-or-before payments reporting requirements − reporting PAYE information before payment is made. There are some limited relaxations to this rule, but this does not excuse the employer from having to report the payments − it merely slightly delays the time.

There is still some ambiguity over the penalty regime, and we may expect some flexibility in the first year of operation. However, HMRC has not stated its exact position over this…

Mahmood Reza is Manager of Pro Active Resolutions.