Real-time PAYE underway in biggest shake-up to income tax since 1994

THE BIGGEST SHAKE-UP to income tax since 1944 is now underway. Taking effect nationally from 6 April, real-time PAYE – or RTI – will see PAYE reported on or before the date employees are paid. Any changes will also be reported as and when they occur, rather than at the end of the financial year. Changes in circumstances – such as a pay rise, promotion or departure from job – will be reported as they happen.

Several key government policies, including the introduction of universal credit and the £2,000 national insurance allowance for employers announced in this year’s Budget are dependent on the ability to calculate PAYE in real time.

In March, it was announced HM Revenue & Customs has temporarily eased the requirements for small businesses after institutes warned that they would struggle to meet the requirements.

That so-called ‘easement’ means businesses employing fewer than 50 people and struggling with the increased frequency of PAYE filings to HMRC will be permitted to continue to file their payrolls monthly until 5 October.

The relaxation came after ICAEW tax faculty head Frank Haskew and chairman Paul Aplin had warned the requirements are “at best, unrealistic and at worst, impossible” for small businesses in evidence provided to the cross-party Treasury Committee in November 2012.

Aplin welcomed the concession, noting at the time that HMRC had “listened”.

“Having raised the issue with the Treasury Committee, with ministers and with HMRC over recent months, this is the solution I was looking for: employers that report monthly but were faced with weekly – or worse – reporting under RTI can now breathe a sigh of relief,” Aplin said.

“Small businesses have been spared a new and unnecessary burden because ministers and HMRC listened. Now we have to use the next six months to secure a permanent solution. I am confident that we will be successful.”

The additional six months will allow stakeholders to better gauge what allowances need to be made to SMEs, CIoT president Patrick Stevens said.

“By October 2013 we should have a clearer idea of what concessions small business will require for RTI to work effectively for the good of all,” he added. “Then we can have a sensible dialogue with ministers and officials about how to build what we have learnt into the design of RTI and universal credit in future.”

Small hiccup
While there was a small IT hiccup in the commencement of RTI, HMRC reported that it processed about 70,000 submissions on the programme’s first working day.

Some companies encountered difficulties submitting PAYE returns, which HMRC said was caused by “routine, bi-annual maintenance” of its IT portal. Those accessing the site between 11pm on Thursday 4 April and 6am on Saturday 6 April were met with the message, “We’re currently testing the service and experiencing lengthy delays to submissions.”

IT giant Sage said it helped 18,807 small businesses make their first submissions after what it described as a “shaky start” – something its small business managing director Lee Perkins said “put HMRC firmly in the spotlight”.

“There was understandable confusion and frustration over the weekend, with businesses unable to file due to HMRC site issues,” he said. “It also underlines why moving payroll submissions to RTI is so important, reducing reliance on HMRC’s website and being up and running with real-time PAYE.”

The problems looked set to be compounded by the industrial action taken by civil service staff in protest against cuts to pensions and working conditions.

The strike by members of the Public and Commercial Services union was designed to disrupt the start of the new tax year and the introduction of RTI. It saw thousands of HMRC staff take part in a half-day walk-out on the morning of 8 April.

However, despite criticism directed at HMRC over a turbulent start to the tax year, it said the IT update was necessary in order to ensure  information on the site reflected legislative changes made in March’s Budget.

The taxman was also at pains to reassure businesses struggling to adjust to the system that it is “under no illusions” about how long the project will take to complete fully.

“We know it will take time before every employer in the country is using RTI,” said HMRC’s director-general for personal tax Ruth Owen. “We appreciate that some employers might be daunted by the change, but they don’t need to be. HMRC is on hand to offer support and we are taking a pragmatic approach – which includes no in-year late filing penalties for the first year.”