There seems to be some confusion about the new Real Time Information rules (RTI) and when penalties apply. There are three situations where a fine can be imposed.
There will be no penalties if your RTI returns are submitted late for 2012 – 2013 (if you are in the pilot) or 2013 – 2014.
According to HMRC: “Penalties for inaccuracies may apply from the 2013-14 tax year. HMRC will continue to use a risk-based approach to identify employers who may be submitting incorrect returns.”
The rules here do not change with the implementation of RTI.
“HMRC will continue to use a risk-based approach to identify employers who are not complying with their payment obligations and who therefore might be liable to late payment penalties.” Full guidance from HMRC can be found here.
My advice? If you don’t think your data is accurate, don’t submit a return until it is. You won’t be fined for a late return, but will be fined if you submit inaccurate data.
Of course you will need to make sure your data is accurate and submit on time for your April 2014 payroll runs, although it’s worth noting that the last day for your RTI return for 2013-2014 is 19 May 2014.
If in any doubt about RTI contact your payroll provider or your accountant.
** After this article was published, HMRC announced a "relaxation of reporting arrangements for small businesses". According to HMRC: "Until 5 October 2013, employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month (5th)." We’ve put together an RTI resource page that contains a handy checklist, various articles, blogs and news.
The introduction of Real Time Information (RTI) for PAYE is being billed as a positive step for all — making it easier for HMRC and employers to operate their PAYE systems. How difficult the transition will be remains to be seen but it is a significant change that every UK business needs to understand and prepare for.
Under the current system — which has remained pretty much unchanged since 1944 — employers are only required to send information about their employees' PAYE and NIC deductions at the end of the tax year. From 2013, they’ll have to do this every month — when they pay their staff. This migration process will take place between April and October 2013.
But businesses need to prepare for the change now.
Is your data accurate?
An important step, according to payroll software specialist Sage, is to make sure your records are 100% accurate. Sage provides nearly half a million employers in the UK with payroll solutions and it has been working closely with HMRC since RTI was conceived.
The wrong data about your staff, it warns, can cause inaccurate tax calculations or HMRC compliance checks.
The vast majority (80%) of data problems, according to HMRC, are concerned with inaccurate information about staff — names, dates of birth and NI numbers.
Its records show that 824 employees had the surname “unknown”, for example. 507 employees are called “A N Other” and over 2,000 have an NI number of AB123456. In addition, some 40 employees on payroll records purported to be over 200 years old!
Recording employee information for RTI
Sage has come up with a useful list of dos and don’ts to help businesses prepare:
• enter the employee’s full forename and surname
• enter a double-barrelled surname in full
• only enter an employee’s correct National Insurance number
• enter the correct date of birth in the format DD/MM/YYYY
• use “known as” names such as Bob instead of Robert or Sam instead of Samuel
• enter an initial in either the forename or surname boxes
• make up an NI number
• enter a default date of birth such as 01/01/1901
There’s more advice on data quality on the HMRC website.
Sage has produced a series of guides and webinars as well as access to training on RTI to help businesses prepare.
• After this blog was published, HMRC announced a "relaxation of reporting arrangements for small businesses". According to HMRC: "Until 5 October 2013, employers with fewer than 50 employees, who find it difficult to report every payment to employees at the time of payment, may send information to HMRC by the date of their regular payroll run but no later than the end of the tax month (5th)."
We’ve seen many new taxes come in under the radar over the past few years, but for me, this is probably the most badly thought-out, badly communicated of the lot. And once again, it’s being left to accountants and tax advisors to communicate the bad news.
If you employ staff, you’ll be familiar with the need to pay monthly PAYE and NI contributions to HM Revenue & Customs (HMRC) by the 19th of the following month.
Up until now, the legislation has been such that if you pay late, it doesn’t really matter. HMRC might write nasty letters – or even send someone round – but ultimately, there was no penalty for paying late. The trick was to get everything square by 19 May annually, and there was no comeback.
This changed on 6 April this year, when the new legislation came into effect.
Here is a brief synopsis of the new rules and penalties for those on the main monthly scheme:
No due reflection is given to the extent to which you’re late. If you are one day late, the penalty will apply.
From an administrative point of view, the law allows HMRC to charge penalties at any stage during the tax year, or after the end of the tax year up to two years of the due date.
In 2010-11, penalties will be charged after the end of the tax year. Therefore, penalty notices will not be sent out until April or May 2011. So please don’t test the system and think you’ve got away with it – you will get a nasty shock in April next year!
Tax is never a popular subject – made even less so by recent revelations that HMRC has got many of our tax codes wrong, meaning excessive charges for some. Mistakes by HRMC aside, ‘tax doesn’t have to be taxing’, as the saying goes. If small firms take the time to keep their books in order throughout the year, a mad dash at key dates in the taxation calendar can be avoided.
2010 has only just begun, so now is the perfect time to turnover a new (bookkeeping) leaf. Start by buying yourself some filing equipment, with different folders for sales invoices, paid and unpaid bills, bank statements and VAT returns, plus wages, if you have staff.
Now you have some inviting looking new folders, go through your in-tray – at least once a week – and put all your bits of paper in the appropriate place. If you set aside a small amount of time to sort out your books, weekly – or even daily – it shouldn’t become too much of a chore. Bookkeeping needs to be part of your routine, like reading emails, otherwise it can be all too easy to find something else to do instead.
Keeping accounts isn’t just sensible, it’s a legal obligation. Companies must keep all records relating to their VAT returns for a minimum of six years after the tax year to which they relate. As a minimum, you must record any income earned or expenses incurred by the company and retain all related documents, including receipts, cheque stubs, invoices, bank statements, PAYE records, etc.
To get a clear picture of where your money is going, your transactions must be recorded in a meaningful way. You should give your ‘expenses’ record a sheet of its own, with columns representing categories such as ‘rent’, ‘utilities’, ‘travel’ and ‘stationery’. This will give you an ongoing sense of where you might be over-spending, which can help you to cut unnecessary costs
Why rely on books or bits of paper when there is a wide variety of accounting software available? For a more simple and cheaper solution, an Excel spreadsheet is a perfectly useful tool for keeping records on your computer.
Keeping your records on a spreadsheet or using bookkeeping software enables you to see your total transactions in an instant. You can also search for a figure among your costs should a mystery debit appear on your bank statement and even produce projections based on the average transactions made in previous months.
You should be using your bank statements as a reference point, checking every figure in your bookkeeping records against transactions on your bank statement. This is a great way to identify missing receipts, while giving you a consistent monthly deadline to follow for getting your records in order.
Make sure you note all key deadlines for filing with HMRC. Set reminders on your computer, so you don’t have to rely on remembering to check your diary. The next one to note is the PAYE deadline on 19 May, when employers must register with HMRC to file online. HMRC is supplying free software so small businesses can file their employee data securely. For more information visit the HMRC website.
If you really can’t commit to the above, it may be time to call in an experienced bookkeeper. Of course, there will be an expense associated with this, but since it could free up your time and give you better information with which to make business decisions, it could be worth the investment.