Businesses Leave Planning for Real Time Information Reporting Dangerously Late
Businesses are leaving planning for the onset of “Real Time Information” payroll reporting (under which employers and pension providers will provide HMRC with data on tax, NICs and other deductions when or before the payments are made as opposed to on an annual basis) dangerously late, according to KPMG in the UK.
And with senior executives taking personal responsibility for tax systems and processes (including payroll) under “senior accounting officer” rules, some finance chiefs are unlikely to want to leave this much later to sort out, in KPMG’s opinion.
Real Time Information payroll reporting is being phased in on a trial basis from April this year, with all other employers required to comply on a phased entry basis from April to October 2013. The rationale for its introduction is to improve the operation of PAYE and to help support the introduction of Universal Credits.
However, with average lead times to prepare for RTI and the simultaneous requirement to auto enrol all employees into a pension arrangement of between 12 and 16 months, KPMG is warning that some businesses are running a risk of leaving it too late.
Matthew Hunnybun, tax partner at KPMG in the UK, said: “Under RTI, employers will need to submit payroll data to the tax authorities electronically on a ‘real time’ basis each time a payment is made, (monthly in most cases), as opposed to the current system whereby data is returned annually. Adopting RTI will require major IT changes to most businesses’ current payroll systems and processes and in many cases, could lead to significant additional costs.”
According to a KPMG survey of 70 businesses, two thirds have not yet started to plan for RTI’s implementation. Almost a fifth (18 percent) were not even aware of the upcoming RTI deadlines and the likely impact of the change. The data suggested that those who had looked at the RTI requirements had identified issues to overcome as 34 percent of respondents noted specific concerns regarding RTI.
The KPMG survey suggested that a number of employers are likely to have issues around consolidating their current payroll systems: over half (52 percent) were responsible for two or more PAYE references numbers, with over a quarter (26 percent) running more than four each currently requiring an end of year submission. Over three quarters of respondents (78 percent) were operating more than one payroll, with 42 percent running more than four.
As well as operating multiple systems, some were operating on multiple timescales with 38 percent of employers running more than one pay period (eg weekly, monthly etc).
The survey also revealed that many employers were still relatively “low tech” in their approach to payroll: a surprising 25 percent of respondents said they did not use software to run their payroll, 22 percent still make payments by cheque and nearly half (49 percent) said that their payroll was not linked to their HR systems.
Over four in ten respondents (42 percent) said they had not reviewed their payroll processes within the last year and almost a fifth (18 percent) said they had not done so for three or more years.
The KPMG data also revealed a relatively high level of international secondments and use of temporary workers which, in KPMG’s view, are both likely to make real time reporting more complicated. 45 percent had employees on assignment abroad, 31 percent had overseas employees assigned to the UK.
Matthew Hunnybun commented: “As well as revealing a worrying lack of preparedness with two thirds of respondents not even starting to plan for RTI, our survey also shows that many employers have quite complicated payroll systems and processes.
In most cases it will be much cheaper and more efficient for them to consider consolidating and reviewing these before implementing RTI rather than converting multiple systems.”
As well as RTI, businesses also have to prepare for auto-enrolment in which they will be required to enrol all their employees into a pension scheme under a similar timescale (see below). Like RTI, auto-enrolment presents a significant challenge to payroll systems. According to KPMG, it makes sense for businesses to review the requirements for both RTI and auto-enrolment in parallel.
Matthew Hunnybun remarked: “No-one will want to go through the aggravation of overhauling their payroll systems for RTI only to have to do it again for auto-enrolment (or vice versa) so it’s best to look at the two issues together. And then while at it, it makes sense to think about improving overall payroll efficiencies. What we are finding is that many businesses are taking the opportunity to really review their pay and benefits provision as part and parcel of complying with these two major changes coming up.”
What can businesses do now?
KPMG recommends that the first step for businesses should be to review their current systems, consider what data they already have, identify areas for improvement and explore costings for upgrading their payroll systems. Where a business has a senior accounting officer (SAO) requirement the senior executive who is the SAO will have an additional incentive to ensure this goes smoothly as we move into year two of SAO HMRC has provided further information on RTI on this link: http://www.hmrc.gov.uk/rti/employerfaqs.htm but further details are expected later this year.
Matthew Hunnybun concluded: “We are working with a number of employers to ascertain their current position regarding their payroll systems and processes. We may not yet have full details of exactly what HMRC will require in terms of RTI compliance but at least having a full picture of where a business is now will help them plan for where they need to get to.”