Another RTI extension?

Friday 26 July 2013

Contractors who work through their own limited companies may well have already adopted real-time information (RTI) payroll reporting to keep HMRC updated on their tax position. However, for those still benefiting from the government’s first extension on the deadline, there is yet another extension on the horizon.

The tax authority has announced a new Statutory Instrument which would relax the rules even further, giving companies with 49 employees or fewer until the start of the next financial year on April 14th 2014 before they have to use RTI. HMRC has published its proposals on its website for external comment, with interested parties invited to send their questions and comments to the taxman’s PAYE Policy team by August 17th.

HMRC says that the initiative is intended to cut the bureaucratic burden levelled at businesses at the end of the financial year. Instead of waiting until the year is over to submit a full set of payroll information for every member of staff, employers are now obliged to submit pay data to HMRC on or before the date when workers are due to be paid.

For many businesses relatively little change was required, since most existing payroll software was already capable of putting together what is known as a “full payment submission”. Micro-businesses with nine or fewer employees can alternatively download a free software package from HMRC’s website which can carry out all of the necessary checks.

However, earlier this year the tax authority relaxed the rules for some small firms after becoming aware that a sizeable number of companies may struggle to adapt. Businesses with fewer employees were the most likely to pay their workers more frequently than once a month, HMRC reasoned, meaning that they would need extra time to adapt their payroll procedures to comply with RTI.

As a result, HMRC relaxed the rules so that these small companies could submit information at any time before the end of the tax month when they pay their staff until October 5th this year. Effectively, this granted them six months’ breathing space. But it seems there are already concerns that some companies will not be ready on time.

RTI is the biggest shake-up to the pay as you earn (PAYE) tax system since 1944, but there have been a number of bumps in the road to implementation.

At the moment over 1.4 million employers are using the system, including 83 per cent of small and medium-sized firms and more than three-quarters of microbusinesses. But rolling out the procedure has come at a cost. Although it is designed to make payroll reporting more efficient, the National Audit Office recently found that the taxman had been put under so much strain by the transition that it had effectively “given up” on as much as £950 million in unpaid PAYE tax in order to relieve the pressure.

Overall, RTI is saving HMRC money, since the roll-out has so far cost less than predicted. But NAO’s report said that it is concerned insufficient provision has been made for coping if the system goes wrong.

A recent survey by the Forum for Private Business found the RTI was also one of the main drivers of a rise in the cost of compliance for smaller companies.

By Victoria McDonnell

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