PAYE and RTI
From April 2013 HMRC introduced changes to the way in which PAYE and payroll information is reported (described as “Real Time Information” or “RTI”). RTI replaces the need to submit the previous end of year payroll summary, the P35. It is important that directors and employers know the changes that have been put in place. So here at Cardens we have decided to write a simple blog to break it down without all the unnecessary complicated bits.
What is PAYE?
Anyone employed by a company is part of Pay As You Earn, this means that the employee has their tax and National Insurance deducted from their wages prior to them getting paid and this amount is paid to HMRC by the employer each month or quarter.
What is RTI?
Real Time Information – each time a payroll is run (usually weekly or monthly) a payroll submission has to be sent to HMRC, showing that periods pay and deduction details for each employee.
Part of the information that is submitted is the employee’s average expected working hours, this information will then be used when qualifying individuals are in receipt of Universal Credits (Universal Credit will eventually replace most existing benefits and tax credits).
The benefits of RTI:
HMRC can instantly see if the employee is on the correct tax code and notify the employer before the next pay run of any necessary change of coding. Under the old system, errors would have only been spotted by HMRC when they received the information at the end of the tax year.
HMRC knows instantly how much the employer is due to pay for PAYE and stops employers getting behind or making errors with their payments and prevents large demands being issued after the end of the tax year.
For companies where there are only directors on the payroll, running RTI also has it’s benefits. If wages are paid at a certain level, £671 per month for the tax year 2016/17, directors will retain the entitlement to state pension in the future and also most other state benefits. The directors should not have to pay any, or minimal, tax and national insurance at this level of salary.
In addition, the payment of these wages will reduce the company profits and therefore reduce the amount of corporation tax that is paid by the company. The reduction in corporation tax should be far in excess of any tax or NI that is paid on the director’s salary.
Why you need to do it:
From March 2015 HMRC will be charging late filing or non-submission penalties with RTI. Penalties will be a maximum of one per month and charged quarterly. The size of penalties will depend on whether you are a micro, small, medium or large employer.
Number of employees Amount of the monthly filing penalty per PAYE scheme
1 to 9 £100
10 to 49 £200
50 to 249 £300
250 or more £400
The benefit of processing a small salary for directors are that these earnings contribute towards your state pension years, as you currently need 30 years of earnings over the national insurance lower earnings limit threshold to entitle you to a full pension. The rate of salary we advise director’s to take (£671 per month for 2016/17) is over the national insurance lower earnings threshold, but lower than the amount that attracts national insurance deductions.
What information you need to run an RTI payroll:
For each employee/director, You will need the following details:
• The employee’s full name
• Their address
• Date of birth
• National Insurance number
What Cardens do:
We will run the monthly payroll and make all the required submissions to HMRC during the tax year, making sure you are not charged any penalties for not complying with the new RTI rules.
How much does it cost?
Our fees start from £120.00 plus vat per year to run an RTI payroll.
If we operate your payroll for you, most of the system changes will affect us rather than you and you should see no significant difference in the service we give you. You might however want to spend two minutes looking at HMRC’s helpful leaflet “RTI at-a-glance” to see the background to RTI.