RTI – The First ConsultationSunday, November 13th, 2011
The story so far…
The Coalition Government issued a discussion document in July 2010 called ‘Improving the Operation of Pay As You Earn (PAYE)’, which introduced us to the concept of Real Time Information and, later, Centralised Deductions. Just after this, the DWP published their White Paper ‘Universal Credits – Welfare that Works’. This outlined the new benefit (UC), which is set to replace a range of benefits on a household. Importantly, we came to realise that UC could only work with RTI in place, and UC was set to go live in October 2013. 02 December saw the Government confirming the RTI go-ahead in its Impact Assessment, followed by the first consultation document on 03 December 2010.
To summarise the dates to form a chronological order:
- September 2010 – HMRC ‘discussion’ document ended
- November 2010 – DWP White Paper published announcing Universal Credits
- 02 December 2010 – HMRC Impact Assessment confirms RTI go-ahead
- 03 December 2010 – HMRC RTI Consultation phase starts
Remembering that our Newsletter’s intention is to increase awareness and understanding of Real Time Information, it is necessary, though difficult, to précis large Government documents. We set out to deliver RTI in ‘bite-size’ pieces; therefore, this Newsletter concentrates on the contents of the 03 December 2010 ‘condoc’, focusing on the issues that are relevant. This is a very large ‘bite-size’ article; therefore, we have decided to break the condoc into two sections:
Centralised Deductions (CD)
This was the concept that would use the National Insurance and PAYE System (NPS) and come as a result of the exchange of data in real time. Briefly, payroll departments would collate most of the gross data that makes up an employee’s weekly / monthly / periodic wage. They would send this electronically to HMRC, who would then calculate the tax and National Insurance and remit the net pay to the employee’s bank account. HMRC’s NPS computer would hold all the relevant details about the employee, therefore, tax and National Insurance would be correct.
The condoc only mentioned CD in a few places. It referred to the concept ‘in theory’, as if it were a distant objective. Some contributors to the initial discussion document said that they could see it may offer advantages, particularly to small employers. However, the condoc states that most contributors ‘expressed significant concerns’. Respondees were noted as saying that the introduction of RTI itself might resolve some of the issues that CD was to address, i.e. incorrect tax deductions. Further, there were ‘concerns around the nature of CD and the handling of payments data by HMRC’, probably due to the lack of details that were given in the discussion document.
The condoc did seek to clarify some areas of CD, presumably in response to concerns raised by respondents. However, a comforting statement was at 4.16, which stated that ‘Further development of PAYE will not be considered until RTI has bedded in and been evaluated’.
We recall industry-wide surprise at the proposals put forward in the initial discussion document – the idea of HMRC taking over the calculation of tax and NI. This was against a backdrop of a bad spell of publicity for HMRC, with tax underpayments totalling £millions. The idea of them taking full control was viewed as incredulous and unthinkable coupled, we believe, with a certain amount of scepticism as to whether HMRC would be able to act as both collector and calculator of tax and NICs.
We think that is the last we will hear of CD for a while!
The discussion document and condoc were always about the exchange of data in real time, CDs was just an add-on. Therefore, the rest of the document focused on this, asking questions along the way. The condoc reaffirmed that RTI was about employers advising information to HMRC at the time the employee is paid. For employees paid via BACS, the information would be sent as part of the BACS submission. The condoc advised that responses to the discussion document were supportive of RTI and, therefore, a phased introduction would begin in 2012.
The consultation would run as follows:
- Responses were encouraged up to 28 February 2011, during which time HMRC would hold workshops and seminars with payroll stakeholders
- The responses would be collated and responded to in Spring 2011, though software developers would be given ‘final’ specifications at the end of March 2011
- Further consultation to follow in Autumn 2011
The condoc made no secret that RTI was now considered a ‘key component’ for the introduction of the DWP Universal Credit (UC). It indicated that the introduction of RTI was led by the fact that UCs was to be live in October 2013.
The July 2010 discussion document prompted over 400 responses, with nearly 75% in favour of the concept of RTI. Concerns were raised over the tight go-live schedule and that HMRC had overestimated the benefits to both themselves and the employer by its claims of increased accuracy and reduced administration. The BACS channel was also queried, concerns raised about the benefits to small employers with a general view that more information was needed.
The condoc envisioned that:
- RTI would be part of the periodic payroll cycle, with the employer reconciling the payroll and personal information to be sent as an RTI submission. This submission would contain a wide range of personal and payment information, such as:
- Name, address and date of birth
- Passport number
- Tax code, NI category
- P46 Expat information
- Gross payment, including Statutory Payments
- Tax paid, NICs paid plus year-to-date values
- Net payment
In total, over 100 items were documented as a requirement on the RTI file
- On a monthly basis, as now, the employer would pay HMRC the net tax and net NICs, taking into account any adjustments that may be required as a result of normal payroll processing (tax, NI corrections etc)
- RTI would not impact on benefits-in-kind and the P11D process would remain, ‘for the time being’. Employers who payrolled benefits would continue to do so and report the information via RTI
- Joiners and leavers information would be submitted via the RTI file (P45s and P46s), therefore, there would be no need for these to be submitted by employers. Similarly, the P14 and P35 administration would not be required, however, the obligation for the employer to issue the P60 would remain
- The BACS channel would be the most effective way of transmitting the RTI file to HMRC and this would complement HMRC’s desire to get the information at, or before, the net payment is made to the employee. However, recognising that 10% of payments are made outside of the BACS system, HMRC would provide an alternative electronic channel – Government Gateway / Basic Tools etc
Further, the condoc published its timetable, as follows:
|April – October 2012||Test phase with volunteer employers|
|October 2012 – January 2013||Adjustment phase plus migrate further volunteers|
|January 2013||Large employers go-live|
|April 2013||Medium employers go-live|
|August 2013||Small employers go-live|
The condoc asked questions, amongst which:
- Could RTI trigger the phasing out of end of year-end submissions?
- Are the 100 or so items to be declared on the RTI file currently held in payroll systems and, if not, can they be obtained?
- Is it ‘preferable’ to phase out the current P45 and P46 processes, or is there a better way than via the RTI file?
- Is RTI submission via the BACS channel the best option?
- In the situation where a supplementary payroll is run outside of the main run, would these one-off runs be best declared at the time of the run or as part of the next main RTI submission?
- The employee number is a vital piece of information in ensuring that the correct tax code is applied to the correct employee. What is the best way of notifying HMRC where an employee’s number changes?
- Is the RTI timetable feasible and what are the issues to be addressed in order that the deadlines are achieved?
In summary, the publication of the condoc was confirmation that RTI would proceed and that Centralised Deductions would not be part of it. Interestingly, it stated that HMRC only expected that the RTI submission would be made up from data items that they believed were already collected and recorded – like passport number, hours worked! We will come back to this topic.
In retrospect, one wonders, perhaps wrongly, whether the concept of CDs was ever a serious one. Both ideas were major changes to the way that we work at the moment, however, CDs was a gigantic change and one that caught industry attention, for all the wrong reasons. Therefore, when we compared the two, RTI looked great in comparison. Was this the intention all along?
The Newsletter will review the condoc responses next week…….
- Payroll Help 28 October 2011 – RTI The Beginning
- Payroll Help 04 November 2011 – RTI – What HMRC Did Next
- Improving the Operation of Pay As You Earn (PAYE) – HMRC Impact Assessment
- Universal Credit – Welfare that Works
- Improving the Operation of Pay As You Earn (PAYE) – Collecting Real Time Information