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Friday, February 24, 2012

Real Time Information and Payroll Software

Real Time Information (RTI) is being introduced by HM Revenue & Customs and will radically change the way in which all employers make their Pay As You Earn (PAYE) and National Insurance Contributions (NIC) returns. RTI will have significant implications for payroll software. Although not yet in place, HMRC expects all employers to be providing RTI by October 2013.

Under the current system, employers send information about tax and NIC deductions for each employee to HMRC at the end of each tax year. Under the new RTI system, employers will tell HMRC about these deductions either before, or when they actually occur.

The fundamentals of PAYE will remain unchanged. Employers will still deduct tax and National insurance but it is the frequency of reporting these deductions which will change.

The reasons for these changes are listed as; the need to improve the way the PAYE system operates, making the process simpler and less of a burden for employers (although HMRC accept there will be transitional costs), making PAYE more accurate, allowing HMRC to ensure the correct deductions are made, and making the calculation of Universal Credits more straightforward, where applicable.

RTI reporting must become integral to normal payroll operations. Software systems will be required to gather the information and send it to HMRC via the internet, through the Government Gateway, or by using Electronic Data Interchange (EDI), which is expected to be available at least until 2014. RTI is likely to require
payroll software systems to provide HMRC with a significant amount of information about each employee and successful submissions will be dependent upon the collection and accuracy of this data as compliance checks will be carried out after the data has been sent.

For the longer term, HMRC expect systems to become available that would allow employers who pay their employees electronically by BACS to automatically send their RTI at the same time.

HMRC are to pilot the system with a number of software developers, commencing in April 2012. The pilot will last for 12 months with all employers being expected to have joined the RTI system by October 2013, although most are expected to join in April 2013 so that their systems are properly embedded by the October deadline.

Rashed Khan hold an MSc in Software Engineering and enjoys guest posting on business/technology related topics. 

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