Real Time Information
HM Revenue & Customs (HMRC) announced on 4 April 2011, that a new system that will improve the operation of Pay As You Earn (PAYE), is going ahead.
David Gauke, Exchequer Secretary to the Treasury, stated that Real Time Information (RTI) “will support improvements to the PAYE system making it more accurate for taxpayers and easier for employers to administer”.
Following consultation, HMRC confirmed that a pilot will begin in April 2012 with volunteer employers and software developers, and, subject to successful completion of the pilot, employers will be required to start using the RTI system from April 2013 onwards.
Steve Banyard of HMRC said: “we wanted people who use the system every day to give us their views on the collection of Real Time Information … we want to work with software developers and employers to help us deliver the new system”.
Challenges ahead for RTI
Integral to the original proposal by HMRC, included a replacement of the current BACS submission method, known as a BACS Standard 18 file, being replaced by an entirely new ISO 20022 file structure. Currently not used for any UK based payments, this would have required an entire upgrade to BACStel-IP processing. Each individual payment record would incorporate RTI data associated with that individual payment. A rewrite of the UK banking payment systems.
Although employers and software developers were generally supportive of the concept of submission of regular information to HMRC (monthly submission of P14 type data or revised data similar to P11) as a separate or tagged file submission with payment, that was not what was proposed. Somehow bank payment data would have to be combined with taxation information. This would cause significant development difficulties and introduce significant payment risk.
Equally, a sizeable group of large employers currently operate their electronic data transfer with HMRC via Electronic Data Interchange (EDI) channels, which was announced as being withdrawn. Such channels would have to be demolished and entirely new business processes built up over the past decade, rebuilt in very short development and employer business process change timetables – a near impossible task.
The other major obstacle is overcoming an assumed concept that payments to banks match fiscal payroll results that are reported. In millions of cases this is not true. Payroll may include non-payable items, share options, benefit in kind values, expenses, loan recoveries, advances for business expenses, and so on. Bank credits may include other non-payroll value as legitimate amounts of money being paid to individual employees with no legal requirement for them to correspond with PAYE values. Does this imply fraud? No – these are legitimate business practices.
Another concept that appears difficult to correspond is the time lag often experienced in the payroll industry between the point of calculation of Payroll and PAYE, and a much later point of the actual payment being made into bank accounts. Errors, changes, adjustment, and revisions often occur, many of these changes being applied to banking systems. How is RTI to be integrated with these change processes?
Even now there are many unanswered questions, especially around the changes to business process. Validation requirements of RTI indicate an essential element of data quality, otherwise the entire PAYE scheme submission is rejected (not the payment, which will be made). How are resubmissions to be undertaken without double paying employees? Common practices where employee details are not yet captured for payroll purposes, but employees are still being paid, will either need to end, or validation on HMRC relaxed. Such elements required for the RTI submission of employee’s addresses, National Insurance numbers, passport numbers, etc. will be required to accompany the very first payment made to individuals. Some sloppy practice will end. The interchange of data from the shop floor to the payroll operation must drastically increase accuracy. The current gap enjoyed with P14 submission and Tax Year End will no longer exist. Accuracy will be required at the point of each payment.
Simon Parsons, chair of the electronic exchange user network said:
IReeN (Inland Revenue electronic exchange Network) works closely with HMRC alongside the other key member bodies BCS (The Chartered Institute for IT) & the British Application Software Developers Association (BASDA). HMRC has listened to our collective concerns on the RTI project – as raised by employer members – particularly in regard to the timing of such changes. As a result, IReeN is delighted to report that HMRC has announced the deferral of the strategic RTI BACs solution until at least April 2013.
As an interim solution, HMRC will accept RTI submissions through EDI and Internet channels. These submissions will include a cross reference to the payment message where the salary or wage payment is made by BACs.
Alongside HMRC, we will make further information available on the payment cross reference aspect of the interim solution in due course. Simon Parsons
For information on Ceridian’s plans for RTI within the Ceridian Electronic Exchange service see Ensuring compliance for RTI