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Should contractors and freelancers be worried about RTI?

From April 2013 we have the biggest change to payroll procedures for over 60 years coming into force. Contractors and freelancers working through limited companies will be required to file payroll information online each month.

Make no mistake RTI is major!

As a contractor you should consider this just as important as filing VAT returns online. Once RTI begins, failure to submit your PAYE data to HMRC on time, may see you incurring penalties. Even if the salary or Director’s fee you take is relatively small, the payroll has to be compliant with RTI. Even if your business is dormant RTI returns must be provided.

Getting the right support.

RTI may be a relatively painless transition if you have the right support in place. If you outsource management of your payroll to your accountant then arguably this is more their problem than yours. Although your accountant may have to solve the problem of running an RTI compliant payroll, it is your responsibility as Director to be RTI compliant, so make sure you are comfortable that your accountant is working to keep you safe. Make sure you ask the question, do not assume this will be done as a matter of course.

Brookson customers will be RTI compliant and ready for the change.

If your accountant uses a leading payroll software package that will be ready for RTI then you are likely to be ready for RTI. The bigger challenge may be where you use accounting software or you are using spreadsheets to calculate payroll returns.

Compliant software

Don’t assume your accounting software will be RTI compliant; again ask the question of the software provider. Accounting software is different to payroll software. Some of the accounting software aimed at contractors has payroll elements, but this may not be RTI compliant. They may be asking customers to buy additional payroll software that links into the accounting software via APIs. This potentially means extra software for you to run and therefore potential extra costs.

What are the main changes will RTI bring for PAYE?

Employers need to send information on the payments they make (or are going to make) through RTI payroll irrespective of the amount of pay.

Three important changes that will happen when RTI is implemented:

1. Information must be sent to HMRC about an employee’s salary and associated deductions before or at the same time the payment is made using Full Payment Submission (FPS). If you are not outsourcing your payroll then the way for small employers to do this is using HMRC’s free software for small employers – the Basic PAYE Tools.

2. There is no longer the requirement to submit P14s for employees or to submit a P35 summary and employers declaration.

3. P45 and P46 (new starter forms) will be retained by employers but employers are not required to submit them to HMRC.

What are the areas that won’t change for PAYE under RTI?

1. Employers will still have to issue P60s to employees.

2. Not included under RTI are Benefits In Kind so as an employer you will still be required to submit P11D, P11D(b) and P9D forms where  applicable after the end of each tax year.

3. The way in which HMRC calculate income tax and National Insurance Contributions remains the same as well as how payments are made to HMRC.

What experiences are contractors having in relation to RTI, are accountants and software providers confident they will be ready in time?

 Is this a major issue, but not a big problem to solve for contractors?

3 Comments

  1. Martin Hesketh

    RTI is an issue which many individuals working through their own personal service company are not sufficiently aware of and the average high street accountant may not be geared up to support compliance for. RTI is significant and can be very costly if not complied with. Speak to your accountant about it to ensure you avoid any penalties.

  2. chris hall

    Hi,

    I have used an accountant to submit my HMRC filings. however I am now looking to do my own filings directly, purely to save costs as my revenue has dipped this financial year.

    I will be using the HMRC RTI tool but am not sure in the first pop up if I should list myself as an employee and if this will increase paye/nics compared to director paye/nics.

    Any guidance appreciated.
    Chris

    • Hi Chris,

      Listing yourself as an employee will make no difference to your PAYE/NICs payable, an employee and a director taking a salary/director’s fee are taxed in the same way on that salary/director’s fee. Under RTI listed as an employee you would be submitting to HMRC information that potentially shows you are not being paid minimum wage (depending on what level you set your director’s fee at). My understanding is that RTI is not been used for monitoring minimum wage. I am not surprised that the basic tool is not making the differentiation between officer and employee as it is looking to keep things simple. Marking yourself as an employee for the purposes of using the basic PAYE tool would not constitute as a declaration that you are an employee and not an officer.

      Kind regards,
      Brian Millrine

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