On 6th April 2013 the PAYE system changes to a ‘real time information system’ (RTI). Under RTI employers are required to update HMRC during the year about changes to staff earnings – so that people on earnings-related credits are not paid out the wrong amount. This will include benefits and bonuses.
Here are the key points:
- Get employees’ NI numbers on their first day of work with you (if not earlier).
- If you use a payroll bureau/agency, your payroll cut off date may be earlier in the month as they will need to collect and process more information. Make sure you note the new deadlines they send you. Give yourself time to collect and report on the new information.
- If you run your own payroll, make sure your software is up to date with the latest versions – check with your software provider for when “real time compliant” upgrades are available.
- If you are still on a manual payroll system, take advice on how to comply. It may be time to get a payroll bureau or some software.
- You’ll need the employee’s National Insurance number. If the paperwork supplied by the employee (P45 etc) does not give you this information, you can get HMRC to do a trace for the number – the form to do that is available from this HMRC’s website
- You have to check eligibility to work in the UK. There is a help page setting out which documents you need to see (and copy) – available online. If you need to use the new employee’s passport for this check, you will also need to give the passport number to HMRC.
- You will need employees to sign a declaration stating:
- Whether this is their first job during the tax year
- That this their only job OR
- Whether they have another job or pension
If RTI works employers and employees will be paying the right tax under PAYE and not building up liabilities for underpaid tax that need to be settled the following year (or paying too much tax and having to claim a rebate).
If an employee is wrongly classified as self-employed for PAYE purposes, liabilities will be accruing and will need paying later. You need to be confident that self-employment is appropriate. Just calling someone self-employed isn’t enough – you have to meet the right tests based on the real way you work with them.
HMRC are on to how much tax this can save employers/employees and it is only a question of time before they start auditing some of the more dubious arrangements.
The tax goal posts have moved. What seemed like a good idea five years ago can be inappropriate today – review your self-employed and freelance arrangements.
From the employer’s point of view, a newly appointed employee now has to serve two years before they qualify for unfair dismissal rights, so employment is an increasingly more flexible option.
For tax advice, please speak to your accountant. More technical information is available from HMRC.
For a free talk on how employment law includes freelance workers check our KoffeeKlatch website.
If you have out of date arrangements or contracts, now is the time to review them and get it straight – talk to us.