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Legislation / Standards

PAYE goes ‘real time’ in April – are you ready?
, By Eric Bignell

If you employ people, you should be preparing for the changes being made to the Pay As You Earn (PAYE) system. It is undergoing its biggest overhaul in almost 70 years.

From April, employers will be required to move to a new way of reporting PAYE. For the vast majority of employers, the first ‘real time’ return will be the first employee payday on or after 6 April.

HM Revenue & Customs says the changes will make reporting PAYE quicker, easier and more accurate for employers.

Employers will not necessarily agree, especially to begin with as they get to grips with reporting every month rather than once a year.

Companies that have not always paid the full amount of PAYE every month but have used it as a way of easing cash flow and caught up towards the end of the year will no longer be able to do so.

In future, employers’ payroll software will need to calculate your PAYE and send the PAYE information to HMRC as part of a routine payroll operation. You should also look carefully at your payroll practices. The way PAYE is calculated is not changing but some of your usual practices might not work for real time reporting.

What does it mean in practice?

Reporting PAYE does not change how or when people are paid, or when employers pay income tax and national insurance to HMRC. But instead of sending in the P14 and P35 forms at the end of year you (or your bookkeeper or payroll bureau) will:

  • send a Full Payment Submission (FPS) each time you pay employees (or before)
  • send an Employer Payment Summary each month, which shows any adjustments to the amount you owe
  • send an Earlier Year Update to correct errors or make adjustments to earlier years
  • send an Employer Payment Summary each month, which shows any adjustments to the amount you owe.

Note: FPS is not available through HMRC Online. You will need to use RTI-enabled payroll software to generate your return.

What you need to do

If you haven’t already, you need to start preparing now.

Speak to your payroll software provider (if you have one) to make sure your software will allow you to meet your obligations from April onwards.

If you do not currently use a payroll service provider and do not use payroll software, you will have to make provision to do so. There is a wide range of commercial payroll software products available, including some free and some low cost products. A list of HMRC-recognised products can be found on the HMRC website.

HMRC’s free basic software, Basic PAYE Tools, will also be available for those companies with nine or fewer employees.

It is also vital that you check to make sure the employee information you hold is accurate and up-to-date. It is particularly important that surname, forename, gender, address, date of birth and National Insurance Number are correct and in the right format.

HMRC says it wants to help and support businesses to make the change, so will not be imposing any penalties for in-year late reporting until 2014.

Further information

This will be a year of transition and HMRC says it will be doing all it can to help businesses make the change. In addition to its website, further support is available through YouTube and via live and recorded online seminars (webinars).

There is more help and advice about reporting in real time on HMRC’s website.