Are you ready for Real Time Information (RTI)?

On 27th July 2010, HM Revenue and Customs (HMRC) published a discussion document, “Improving the operation of PAYE”, which covered two proposals; Centralised Deductions (CD) and Real Time Information (RTI). The document highlighted options to improve the current PAYE system so that information on PAYE deductions is collected at the time an employee is paid, not at the end of the tax year. And on 3rd December HMRC produced a report titled “Improving the operation of Pay As You Earn (PAYE): Collecting Real Time Information”. RTI was born.

So what is Real Time Information [RTI]?

The fundamentals of PAYE are unchanged, however Real Time Information [RTI] changes how and when employers and pension providers report information to the HMRC.

What’s the problem with the current PAYE system?

Under the current PAYE system HMRC are only able to review whether the correct pay deductions have been made after the end of the tax year. While under RTI, HMRC will receive information when, or before payments are made meaning more employees will pay the correct amount of tax and National Insurance.

Why is RTI being introduced?

HMRC states, “Real Time Information (RTI) is being introduced to improve the operation of PAYE. It will make the PAYE system easier for employers and HM Revenue & Customs (HMRC) to operate, and employees will receive information more quickly. It will also help support the introduction of Universal Credits.”

According to HMRC, the RTI will simplify the PAYE process and make it less burdensome for employers and HMRC. What’s more, the RTI will make PAYE more accurate and reduce Tax Credits error and fraud.

When will it be introduced?

HMRC are planning a pilot which is due to start in April 2012 and by October 2013, all employers will be using the RTI service.