What is Real Time Information (RTI)?
Real Time Information is the biggest change to the PAYE system since its inception in 1944. The change is an administrative one; essentially only the reporting will be different. But the shift is significant, moving from retrospective annual reporting to real time transfer of PAYE information coincident with the running of payroll. This does away with annual forms such as P35 and P14, though notably benefits will still be reported annually on form P11/P11D and P60s provided to employees.
Why the change?
HMRC are keen to emphasise that RTI will lead to a more efficient implementation of PAYE, with more employees paying the correct amount of tax. However, the largest driver appears to be the government's Universal Credit system, due to be launched in October 2013. RTI information will be shared with the Department of Work and Pensions in order to administer this system effectively.
When will I need to implement RTI?
The introduction of the Universal Credit has created a rather tight timetable for the implementation of RTI, given the track record of large government IT projects. It will be phased in between April and October 2013, with the first pilot schemes launching in April 2012.
How will RTI work?
HMRC envisages RTI integrating seamlessly with payroll software, and has been working with software providers to this end. There have, however, been concerns raised about the short timescale and the likelihood of teething troubles. HMRC's ambitions have already had to be scaled back, as they had originally hoped for the delivery of information through the BACS system alongside the payment of salaries. However, they were told by the banking sector that this was not possible in the allotted time and so information will be delivered over the internet via the Government Gateway or the Electronic Data Interchange (EDI).
Before joining, every company’s payroll system must be tested in a process known as Payroll Alignment (pdf), which will provide HMRC with sample data to check systems compatibility. It is important to start thinking about RTI as soon as possible.
Should I join a pilot scheme?
With the tight timetable increasing the chances of issues with RTI systems, it may be advisable to try and join a pilot scheme. Greater levels of support will be given by HMRC to ease the transition, and it will allow for kinks to be worked out without fear of the new penalties that will be launched alongside mandatory RTI implementation. Entry for the pilot schemes in April and July 2012 is now closed, but further schemes are planned for November 2012. Contact your payroll software provider for more information.
HMRC have released a comprehensive FAQ on Real Time Information.