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The PAYE system was first implemented in 1944 and has remained virtually unchanged. Unfortunately, it has become extremely cumbersome to administer and leads to many inaccuracies. Employers must report weekly or monthly on the wages paid and tax and National Insurance deducted and pay over any residual amount due at the end of the year by 19 May following the end of the tax year.  Most employers are required to report online.
 
In a fundamental change to this archaic system, HMRC has announced its intention to capture the data as it arises on a real-time basis (RTI). Under RTI, information will be collected at each payroll run, facilitating the collection of the right amount of tax at the right time. There should be no need to submit the end of year returns as the information will be captured in the RTI data stream.

Pilot scheme

A pilot scheme is to be launched in April 2012 with 300 volunteer employers. Additional employers will join the pilot in July 2012 and more from November 2012, depending upon the initial findings.

Challenges

Large volumes of information will be required with each payroll run, including:

• anticipated duration of stay in the UK for international employees
• receipt of pensions
• number of hours worked
• tax-free payment made
• passport numbers for non-UK individuals

Some of these may cause problems where the payroll is outsourced and information is held in-house in another department and there may well be extra expense as software companies pass on their implementation costs.

RTI will not be voluntary; it is expected to be mandatory by October 2013, in time for the introduction of the Universal Credit by the Department for Work and Pensions. It may also facilitate the integration of National Insurance and income tax. It should be emphasised that it is purely an administrative change; the payment of payroll taxes will not change.

Further information is available from HMRC.

Have your say
Tell us how the proposed change will impact on you and your business in our cover page survey and send any additional comments to advisory@uk.accaglobal.com

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