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FPS, EAS, EPS… what does it all mean, what button should I push now and why are they on strike today? Contractor Umbrella look at the impact that the introduction of RTI is having on businesses in the UK.

Similar thoughts were no doubt ambling through the grey matter of many payroll managers last week once they’d completed the year-end. Well of course, for any sort of payroll professional (or possibly even accountants), unless you’ve been living with your head in a jar, you will know that April 6th 2013 witnessed the most significant changes to PAYE since its introduction in 1944.

In post-war Britain, jobs were careers, and careers were for life. From bakers to bankers, the job you started after leaving education was more than likely to be the career you retired from at the end of your working life. So for the Inland Revenue, as it was at the time, recording an individual’s income details, tracking them and making sure that the correct deductions were made was a relatively simple exercise, made so by the non-transient nature of the workforce at large.

Half a century later, and the evolution of the workforce has meant that individuals change jobs and careers more frequently than ever before, sabbaticals are more commonplace and redundancy is no longer a rude word. Parental leave for either parent is routine and employers are accommodating of the broad experience that a more flexible workforce can bring.

Keeping up with all these changes, however, has caused HM Revenue & Customs (HMRC) a bit of a headache.

Back in 2010/2011, almost 6 million people were caught up in a huge PAYE tax error; some had paid too much tax, whilst most had paid too little. These were not self-assessment errors, but errors that had resulted from incorrect coding notices being issued.

HMRC was finding it increasingly taxing (excuse the pun!) to keep up with the ever-changing earnings and income patterns of the workforce. In order for HMRC to cope efficiently with PAYE in the 21st Century, a new way of reporting was required, and so Real Time Information (RTI) was born.

RTI is a reporting system for PAYE that allows the real time submission of PAYE data to HMRC each and every time an employee is paid. It eliminates the potential for tax code errors, allows for the correct deductions to be applied if an employee has more than one job, and will track more efficiently, those individuals who move jobs. It is also designed to support the introduction of Universal Credit on October 6th of this year, supplying the Department for Work & Pensions (DWP) with real time information about earnings thus allowing them to assess the correct level of benefits.

Providing it works, (and there is no reason to suspect that a large IT project introduced by a Government Agency won’t!), there should be measurable efficiency savings for the Government and most larger employers will probably also benefit as their reporting becomes more streamlined.

However, the Federation of Small Businesses (FSB) has voiced concerns over the impact that this will have on small businesses. Speaking to the Financial Times, Mike Cherry from the FSB said that RTI created a “regrettable” additional cost burden for small businesses. Subsequently HMRC relaxed its reporting guidelines for small firms until the 5th October, agreeing that firms with fewer than 50 employees that pay their staff weekly or more frequently can send information monthly or by the date of their regular payroll run but no later than the end of the tax month.

For all other businesses, there are no concessions for non-compliance and HMRC has announced that the failure to report RTI will incur financial penalties from the start of April 2014.

Article written by Simon Dolan, Sales & Marketing Manager of Contractor Umbrella Ltd, one of the UK’s most respected and compliant umbrella companies.

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