Firms Not Ready For PAYE Overhaul

PAYE has been in the news this week, with almost every national newspaper and even trade magazines pointing out that there are only eight weeks to go before the biggest overhaul to the payroll system in decades.

Real Time Information (RTI) is being introduced by HMRC on April 6, 2013 to improve the operation of PAYE, which allows income tax and national insurance to be deducted from employees’ wages before they are paid.

Under the current system employers submit PAYE information to HMRC each May using an electronic version of forms P35 and P14. However, the new RTI system will require firms to send this payroll data to the HMRC online, via the Government Gateway, on or before the date each employee is paid.

It is vital that firms are ready for RTI, as this is a fundamental change that will particularly affect cash flow. Before now, some firms underpaid their PAYE to help ease cash flow but this will no longer be possible without incurring a penalty.

Because PAYE information will soon be given in real time, HMRC will know exactly how much is owed by firms and when it is due to be paid. So if a business does not pay the correct amount promptly they will be liable to a penalty and penalties will also be enforced if firms supply inaccurate data, such as the dates of births and names and addresses of employees on the payroll.

However, a recent Federation of Small Businesses survey of 1,700 members showed that a quarter did not know about the changes and that only 16 per cent were prepared, which means that, despite saying publicly that the programme is “on track”, HMRC is bracing itself for “glitches”.

As an accountant, Simon Denton specialises in providing PAYE advice, support and guidance.

Posted in News.