RTI annual scheme could attract contractors

Thursday 8 August 2013

Contractors who work through their own limited companies can now request to change their pay as you earn (PAYE) tax status to reflect being paid annually, after HMRC implemented a new fix.

Ever since real time information reporting (RTI) for payroll information was introduced in April, HMRC says that it has been facing requests from companies which only pay their workers once a year. Rather than being forced to submit monthly returns, they have requested that their PAYE status be changed to reflect these uncommon arrangements.

HMRC says that it was unable to deal with any of these requests until the new fix had been put in place, but will now be working to accept every submitted request and change the status of those schemes. Because it will not be informing employers when the change has been made, however, companies will need to watch out for the changes coming into effect.

To be eligible for annual PAYE status, companies must ensure that all of their employees are paid once a year in the same single tax month and that the employer is only required to pay HMRC on an annual basis.

It is likely that a number of contractors working through their own limited companies will have considered making these requests, especially if they choose to pay themselves relatively low salaries in exchange for higher dividends.

RTI is already widely regarded as the biggest shake-up of PAYE tax for decades. Rather than sending off 12 months of payroll data at the end of every financial year, the new system requires employers to submit the details of every payment made to employees on or before the day when the funds are sent. Data can be submitted online using existing payroll software, most of which was equipped to send a Full Payment Submission form before RTI was introduced.

Once a business has registered as an annual PAYE scheme, they are only required to submit an Employer Payment Summary in the month when employees are paid. HMRC already has records of its debt management system of when those payments are due to be made, based on information from previous years; this data will automatically be transferred over to the new accounting system which is dealing with RTI.

If businesses need to change the date in which they pay their employees, they will be able to do so by filling in a Full Payment Submission on the new payment date. At that point, HMRC will automatically change the payment date to that month on its own system. However, if employers submit a Full Payment Submission more than once in a single tax year, HMRC will automatically cancel the annual status and revert back to a monthly system.

Contractors who have not registered their limited companies as annual PAYE schemes will need to submit a different form in each month when payments are not made. The NIL EPS/period of inactivity form will be used to notify the tax authority that no other payroll data will be submitted for that month. This will be necessary every month until registration for annual status is confirmed.

By Victoria McDonnell

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