If you’re like over half the UK organisations recently surveyed by KMPG, the answer is that you’re not sure whether your existing Electronic Data Interchange (EDI) solution will meet HMRC’s new requirements for real-time information (RTI). The start date is approaching fast, from April the majority of companies and pension providers must start to report in real-time, with an absolute deadline of compliance of October, 2013.
Many companies are unsure as to exactly how they can meet the RTI requirements. There is confusion around which technical solutions can be used because at first, HMRC was insisting everyone use the Banker’s Automated Clearing Services (BACS) network. However, the deadline for moving to BACS has been pushed way-back due to the number of companies already reporting to HMRC through EDI, so if your organisation is already using this reliable method the approaching deadline might not be as ominous as you think.
What is Real Time Information?
The short answer is that it is a move from filing payroll returns on an annual basis, to filing them before (or at the same time as) wages are paid. From a single annual filing, organisations will provide 12 a year if they pay their employees monthly and 52 if people receive their wages weekly. HMRC expects the employer to provide an electronic file containing all relevant information in a correct manner. If the information is wrong, the best you can expect is for the file to be returned and you to have to make any corrections before re-submitting. At worst, heavy fines may accrue.
Why the Change?
HMRC is implementing a more effective way to handle a fluid workforce where people change jobs frequently and many have more than one source of employment. By implementing RTI, HMRC aim to reduce fraud, issue correct benefits, ensure efficient responses to under/over payments and provide the Department of Work & Pensions up-to-date employment information. The system will also incorporate the new Universal Credits program and optimise issuing benefits into a single payment. As the old process disappears, with it go a number of processes and forms that payroll teams used to have to deal with – including the iconic P45.
Think RTI doesn’t apply to your company? Think again. Some commentators are referring to this new method of reporting to HMRC as ‘momentous’. Pay As You Earn (PAYE) reporting has remained unchanged for a little over 70 years, and has not reflected modern working practises for some time. It is then unsurprising that HMRC decided to improve the process and this program applies to all companies and pension providers.
What Else is Affected?
Payroll reform is only half the story. There is also the 2012 Pension Reform Act which requires every organisation in the UK – starting with the largest – to provide a workplace pension for its employees. Each organisation has to auto-enrol all its employees onto the scheme and even if employees opt out, the employer still has to auto-enrol them first.
It’s important that both the payroll and pension reforms are considered together because the government requires that it has Real Time Information on both in order to properly administer its Universal Credit (UC) scheme that comes into effect in October 2013.
What Does Real Time Information involve?
Brian Stenhouse, Director of Group Payroll Services at Armstrong Watson and member of the HMRC Customer User Group (CUG) suggests that in the first instance, the following will be required:
- Full Name of Employee
- Date of Birth
- National Insurance Number
Although, he believes that this will soon be extended. The Gartner Group in its recent report ‘UK Payroll Reform will challenge IT and HR Payroll departments and vendors’ suggests that in the future the government will also want to capture information such as:
- Banding of hours worked
- Passport number of employee’s
- Irregular employment indicators
- Industrial dispute indicators
The UK government has also made it known that it wishes to capture information on time lost to strike and unpaid leave. Gartner states that these new reforms will have a major impact on payroll and pension professionals and systems.
Can I Still Use EDI? Yes You Can.
A major part of the challenge is how to communicate effectively with HMRC. Only the smallest companies will still be allowed to file payroll returns or auto-enrolment manually, leaving the majority of UK businesses with the challenge of ensuring large amounts of highly accurate information is exchanged with HMRC on a real-time basis.
Initially the idea was to remove Electronic Data Interchange from the equation and only use BACS, but HMRC have perhaps realized how many companies are already using EDI, and they have now allowed this reliable method to continue until at least 2017. This provides maximum flexibility for both HMRC and employers as forcing companies onto a single proprietary network can only limit the success of RTI.
There are now two agreed routes, the Internet-based Government Gateway or EDI. This is good news for companies that are already using EDI, even if they are not currently exchanging documents electronically with HMRC. If your company is currently using EDI it should view HMRC as simply another trading partner to be on-boarded, effectively adding the government as another ‘supplier’.
The benefit of using EDI is that your service provider will handle the data mapping and translation required to ensure that the data received by HMRC is accurate and in the correct format for them. As the depth of information required by RTI grows, this approach allows you to accommodate the changes quickly and without disruption.
It will be no surprise to learn that most large B2B providers already have HMRC as part of their trading network. EDI has been an established method of data exchange with UK government for a number of years.