Real Time Information (RTI) for Payroll: An Overview

Real Time Information (RTI) represents a pivotal shift in the UK’s approach to managing PAYE (Pay As You Earn) submissions, introduced by HM Revenue and Customs (HMRC). This system necessitates that employers report wage payments to HMRC in real time, each time employees are paid, marking a significant departure from the annual reporting model previously in place. Understanding RTI’s nuances is crucial for employers to ensure compliance and streamline their payroll processes.

RTI’s introduction aims to enhance the efficiency of PAYE submissions without altering the calculation methods. However, it revolutionises the reporting mechanism, requiring real-time information dissemination to HMRC. This adjustment means reporting employees’ pay, deductions, and taxes as they occur, not merely at the fiscal year’s end. For an in-depth exploration of tax responsibilities, especially for freelancers and those considering freelancing during furlough, Are you a freelance on the side? Do you know what tax you should pay? and Can I freelance whilst on furlough? provide essential insights.

Understanding RTI in Payroll

Real Time Information (RTI) is a system designed to make Pay As You Earn (PAYE) submissions more efficient. It requires employers to submit information to HM Revenue and Customs (HMRC) in real time, every time they pay employees. This means that you need to report your employees’ information as they are processed, rather than at the end of the financial year.

The Basics of RTI

RTI doesn’t change the way you calculate PAYE, but it does change the way you report it. Instead of submitting an annual return, you must now send HMRC details of your employees’ pay, tax, and National Insurance contributions every time you pay them. This includes information on starters, leavers, and any other changes to your employees’ circumstances.

When you run your payroll, you’ll need to send an Full Payment Submission (FPS) to HMRC. This will show the amount of pay, tax, and National Insurance contributions due for each employee. You’ll also need to send an Employer Payment Summary (EPS) if you’re claiming any reductions or recoveries, such as statutory pay or apprenticeship levy.

Importance of RTI for Employers and Employees

RTI is important for both employers and employees. For employers, it means that you need to be more organised and keep on top of your payroll submissions. However, it also means that you’ll have more accurate and up-to-date information on your employees’ pay and tax, which can help you make better business decisions.

For employees, RTI means that their tax and National Insurance contributions are more accurate and up-to-date. This can help to ensure that they’re paying the correct amount of tax and receiving the correct benefits. It also means that they’ll have more accurate information on their pay, which can help them to budget and plan for the future.

Employers are required to make Full Payment Submission (FPS) to HMRC with every payroll run, detailing each employee’s pay, tax, and National Insurance contributions. This system ensures the timely and accurate reporting of deductions, including pension contributions. The transition to RTI necessitates diligence in managing employee data, accurately capturing personal details, tax codes, and bank information for all employees. For businesses navigating the sole trader versus limited company considerations, Sole trader vs limited company vs umbrella company: What’s best for you? offers valuable comparisons.

Key Components of RTI

Real Time Information (RTI) is a new system introduced by HM Revenue and Customs (HMRC) to improve the accuracy and timeliness of payroll information. It requires employers to report PAYE (Pay As You Earn) information in real time. There are three key components of RTI:

Full Payment Submission (FPS)

The Full Payment Submission (FPS) is the most important component of RTI. It is a report that employers must send to HMRC every time they pay their employees. The FPS contains details of each employee’s pay, tax and National Insurance contributions. It also includes information about any deductions made from the employee’s pay, such as pension contributions.

Employer Payment Summary (EPS)

The Employer Payment Summary (EPS) is another component of RTI. It is a report that employers must send to HMRC each month, even if they have not paid any employees. The EPS is used to tell HMRC about any changes to the amount of National Insurance contributions that the employer owes, such as reductions due to statutory payments.

Earlier Year Update (EYU)

The Earlier Year Update (EYU) is the final component of RTI. It is used to correct any errors that have been made in previous FPS or EPS submissions. Employers should use the EYU to report any adjustments to an employee’s pay or tax for the previous tax year.

In addition to these components, there are other RTI submissions that employers may need to make, such as an Employer Alignment Submission (EAS) which is used to align an employer’s payroll records with HMRC’s records.

Overall, RTI is designed to make the submission of payroll information to HMRC more efficient and accurate. By requiring employers to report PAYE information in real time, RTI helps to ensure that employees are paying the correct amount of tax and National Insurance contributions.

RTI Submission Process

Real Time Information (RTI) is a reporting system that requires you to submit employee pay and other deductions to HM Revenue & Customs (HMRC) each time you pay an employee. This section will cover the RTI submission process, including deadlines and scheduling, accuracy and compliance, and penalties for non-compliance.

Deadlines and Scheduling

Under the RTI system, you must submit an FPS (Full Payment Submission) to HMRC every time you pay your employees. This means that you must submit an FPS on or before the day you pay your employees. For example, if you pay your employees on the last Friday of every month, you must submit an FPS on or before that date.

It’s important to note that FPS submissions are not just for employees who are paid weekly or monthly. If you make any payments to employees, including expenses or benefits, you must submit an FPS to HMRC.

Accuracy and Compliance

Accuracy is crucial when submitting FPS to HMRC. You must ensure that the information you submit is correct and up-to-date. This includes details such as employee names, addresses, National Insurance numbers, and pay and deductions.

To ensure compliance with the RTI system, you should also check that you have correctly calculated the tax and National Insurance contributions for each employee. You must also make sure that you have included any relevant deductions, such as student loan repayments.

Penalties for Non-Compliance

If you fail to submit an FPS on time or submit incorrect information, you may face penalties from HMRC. The penalties for non-compliance can be significant, so it’s essential to ensure that you submit accurate and timely FPS submissions.

The penalties for non-compliance include a fixed penalty of £100 for each month or part month that you fail to submit an FPS. There may also be additional penalties if you fail to submit an FPS for more than three months or if you submit incorrect information.

In conclusion, submitting accurate and timely FPS submissions is crucial when using the RTI system. Make sure you understand the deadlines and scheduling requirements, check your submissions for accuracy and compliance, and be aware of the penalties for non-compliance.

Integrating RTI with Payroll Software

Real Time Information (RTI) is a system designed to make PAYE submissions more efficient, requiring employers to report their employees’ information as they are processed, rather than at the end of the financial year. Integrating RTI with your payroll software can help streamline the process and ensure that your systems are RTI-ready. Here are some things to consider when integrating RTI with your payroll software.

Choosing the Right Software

When it comes to integrating RTI with your payroll software, choosing the right software is crucial. Look for software that is specifically designed to be RTI-ready and that integrates seamlessly with your existing systems. Make sure that the software is compatible with the PAYE system and that it can handle all the necessary reporting requirements.

Setting Up for RTI

Once you have chosen the right software, it is important to set up your systems for RTI. This involves configuring your payroll software to be RTI-ready, which may require some adjustments to your existing processes. Make sure that all your employee data is up-to-date and accurate, as this will be crucial for RTI reporting. You may also need to train your staff on how to use the new system and ensure that they are familiar with the reporting requirements.

Maintaining RTI-Ready Systems

Once your systems are set up for RTI, it is important to maintain them to ensure that they remain RTI-ready. This involves regularly updating your software to ensure that it is up-to-date with the latest reporting requirements. You should also regularly review your systems to ensure that they are working correctly and that all employee data is accurate and up-to-date.

In conclusion, integrating RTI with your payroll software can help streamline your processes and ensure that your systems are RTI-ready. When choosing software, make sure that it is specifically designed to be RTI-ready and that it integrates seamlessly with your existing systems. Set up your systems for RTI and train your staff on how to use the new system. Finally, maintain your systems to ensure that they remain RTI-ready, regularly updating your software and reviewing your systems to ensure that they are working correctly.

Managing Employee Data

When it comes to managing employee data, Real Time Information (RTI) payroll requires employers to keep accurate and up-to-date records of their employees. This includes details such as their name, address, date of birth, National Insurance number, and payroll ID.

New Starters and Leavers

When a new employee joins your company, you must ensure that you have all the necessary information to set them up on your payroll system. This includes their personal details, their tax code, and their bank account information for payment purposes. You will also need to register them with HM Revenue and Customs (HMRC) and provide them with a payroll ID.

When an employee leaves your company, you must provide them with a P45 form, which shows their earnings and the tax that has been deducted. You must also inform HMRC that the employee has left and provide them with the employee’s leaving date.

Updating Employee Information

It is important to keep employee information up-to-date, as any errors or omissions can result in incorrect tax deductions or payments. You should ensure that any changes to an employee’s personal details, such as their address or name, are reflected in your payroll system and reported to HMRC.

If an employee’s tax code changes, for example, due to a change in their income, you must update your payroll system and ensure that the correct tax is deducted from their earnings.

Overall, managing employee data is a crucial aspect of RTI payroll, and it is important to ensure that you have accurate and up-to-date records for all your employees. By doing so, you can avoid any potential issues with HMRC and ensure that your employees are paid correctly and on time.

Payroll Calculations and Deductions

When it comes to payroll calculations and deductions, there are several factors you need to consider. This includes taxes, national insurance, statutory pay, and deductions.

Tax and National Insurance

Tax and National Insurance are two of the most important payroll deductions. Tax is calculated based on the amount of money you earn over a tax year, which runs from April 6th to April 5th the following year. The tax year is divided into tax months, and your employer will deduct a certain amount of tax from your pay each month. The amount of tax you pay depends on your tax code, which is issued by HM Revenue and Customs (HMRC).

National Insurance is a contribution that you make towards the cost of certain state benefits, such as the State Pension. The amount of National Insurance you pay depends on how much you earn, and whether you are employed or self-employed.

Statutory Pay and Deductions

Statutory pay is the minimum amount of pay that an employer is required to provide to an employee by law. This includes Statutory Sick Pay (SSP), Statutory Maternity Pay (SMP), and Statutory Paternity Pay (SPP). The amount of statutory pay you receive depends on your circumstances, such as how long you have been employed and how much you earn.

Deductions are amounts of money that are taken out of your pay for various reasons. This includes things like pension contributions, student loan repayments, and childcare vouchers. Your employer will deduct these amounts from your pay before they pay you.

Calculating taxes and National Insurance contributions is a cornerstone of payroll management under RTI. Employers must be adept at adjusting payroll calculations to reflect each employee’s circumstances accurately. This includes keeping abreast of the latest tax rates and allowances for 2024, which are essential for precise payroll processing.

The Role of HMRC

Real Time Information (RTI) is a UK government initiative that was introduced in 2013 to improve the operation of Pay As You Earn (PAYE) system. The HM Revenue and Customs (HMRC) is responsible for the implementation and management of the RTI system. In this section, we will discuss the role of HMRC in the RTI system.

HMRC Online Services

HMRC provides online services that allow employers to report their payroll information in real-time. The online services include the PAYE Online for Employers service, which allows employers to submit their payroll information online, view their tax code notices, and receive messages from HMRC. The service is free to use and is available 24/7.

Compliance and Regulations

HMRC is responsible for ensuring compliance with RTI regulations. Employers are required to submit their payroll information in real-time and failure to do so can result in penalties. HMRC also provides guidance on how to comply with RTI regulations. Employers can access the free guide on the gov.uk website.

Support and Resources

HMRC provides support and resources to help employers comply with RTI regulations. Employers can contact HMRC for help and advice on how to submit their payroll information in real-time. HMRC also provides a range of resources, including videos, webinars, and guides, to help employers understand the RTI system.

In summary, HMRC plays a crucial role in the implementation and management of the RTI system. The online services provided by HMRC allow employers to submit their payroll information in real-time, while compliance and regulations ensure that employers comply with RTI regulations. HMRC also provides support and resources to help employers understand and comply with the RTI system.

End of Year Procedures

As the payroll year-end approaches, it’s important to ensure that all your RTI submissions have been made correctly. Here are some key things to keep in mind:

Final RTI Submission

Your final RTI submission of the year should be made on or before the date that your employees receive their last payment of the tax year. This submission should include all payments made to your employees during the tax year, including any bonuses or other payments in addition to their regular pay.

Employee Documentation

You must provide your employees with a P60 form by 31 May each year. This form summarises their total pay and deductions for the year, and is an important document for their tax records. You must also provide a P11D form for any employees who have received expenses or benefits during the year.

Preparing for the New Tax Year

As you prepare for the new tax year, it’s important to ensure that you’re up to date with any changes to payroll legislation. This includes changes to tax rates and allowances, as well as any changes to employment law that may affect your payroll processes.

Some common pitfalls to avoid include failing to make accurate RTI submissions, failing to provide accurate P60 and P11D forms, and failing to keep up to date with changes to payroll legislation. By staying on top of these issues, you can ensure that your payroll processes run smoothly and that your employees are paid accurately and on time.

Special Considerations

Small Businesses and RTI

If you own a small business, you may be wondering how Real Time Information (RTI) affects you. The good news is that RTI was designed to make the process of submitting PAYE information more efficient, which should be helpful for small business owners who may not have a dedicated payroll department.

However, it’s important to note that small businesses may face some challenges when it comes to implementing RTI. For example, you may not have the resources to invest in new software or training for your staff. In this case, outsourcing your payroll to a company that is already set up to handle RTI submissions may be a good option for you.

Outsourcing vs In-House Payroll

When it comes to managing your payroll, you have two main options: outsourcing or handling it in-house. There are pros and cons to both approaches, and your decision will depend on a number of factors, including the size of your business, your budget, and your level of expertise.

Outsourcing your payroll to a company that specialises in RTI submissions can be a good option if you don’t have the resources to handle it in-house. This can be especially helpful for small businesses, as it allows you to focus on other aspects of your business while ensuring that your payroll is being handled correctly.

On the other hand, handling your payroll in-house gives you more control over the process and can be more cost-effective in the long run. However, it’s important to note that this approach requires a certain level of expertise and can be time-consuming, especially when it comes to implementing new systems like RTI.

Overall, the decision to outsource or handle your payroll in-house will depend on your unique situation. It’s important to weigh the pros and cons of each approach and choose the one that makes the most sense for your business.

Common Challenges and Solutions

Dealing with Underpayments and Overpayments

One of the biggest challenges of RTI payroll is dealing with underpayments and overpayments. Underpayments occur when an employee is paid less than they are owed, while overpayments occur when an employee is paid more than they are owed. These mistakes can happen for a variety of reasons, such as miscalculations, incorrect data entry, or changes to an employee’s pay rate.

To address underpayments and overpayments, it’s important to have a clear process in place for identifying and correcting these errors. This may involve reviewing payroll reports regularly, reconciling payroll data with bank statements, and communicating with employees to resolve any discrepancies.

Addressing RTI Submission Errors

Another common challenge of RTI payroll is dealing with submission errors. These errors can occur when submitting real-time information to HMRC, such as incorrect employee details, incorrect pay amounts, or missing data. These errors can result in penalties and fines from HMRC, which can be costly for businesses.

To address submission errors, it’s important to have a clear understanding of the RTI submission process and to ensure that all data is accurate and up-to-date before submitting it to HMRC. This may involve implementing quality control measures, such as double-checking data entry and reviewing payroll reports regularly. Additionally, it may be helpful to provide training and support to employees to ensure that they are familiar with the RTI submission process and can avoid common errors.

Overall, while there are challenges associated with RTI payroll, there are also solutions that can help businesses navigate these challenges successfully. By implementing best practices, such as having a clear process for identifying and correcting underpayments and overpayments and addressing submission errors, businesses can ensure that their RTI payroll processes are accurate, efficient, and compliant with HMRC regulations.

Future of RTI and Payroll

Real Time Information (RTI) has been around for over a decade now, and it has revolutionised the way payroll is managed. The future of RTI and payroll is exciting, with many trends emerging that will shape the industry in the coming years.

One of the most significant trends in the future of RTI and payroll is automation. With the increasing use of technology, more and more companies are turning to automation to streamline their payroll processes. This means that tasks such as data entry, calculations, and reporting will be automated, freeing up time for HR and payroll professionals to focus on more strategic tasks.

Another trend in the future of RTI and payroll is the use of analytics. With the vast amount of data generated by payroll systems, companies are starting to use analytics to gain insights into their workforce. This means that HR and payroll professionals will be able to use data to make informed decisions about their workforce, such as identifying trends, predicting future needs, and developing strategies to improve employee retention.

In addition to automation and analytics, the future of RTI and payroll will also be shaped by the increasing use of cloud-based systems. Cloud-based payroll systems offer many benefits, such as increased security, scalability, and accessibility. This means that companies will be able to manage their payroll systems from anywhere in the world, and employees will be able to access their pay information from any device.

Overall, the future of RTI and payroll is bright, with many exciting trends emerging that will shape the industry in the coming years. As technology continues to evolve, we can expect to see even more innovations in the way payroll is managed, making it easier and more efficient for companies of all sizes.