Diana Bruce - June 2012
Senior Policy Liaison Officer for the Chartered Institute of Payroll Professionals
I'm sure it will come as not surprise to hear that there are two main topics high on the payroll agenda at the moment; Real Time Information (RTI) and Automatic Enrolment.
Real Time Information
The next 18 months sees the most fundamental change to Pay As You Earn (PAYE) reporting as under Real Time Information (RTI) employers and pension providers will have to tell HMRC about PAYE payments at the time they are made as part of their payroll process. Payroll software will collect the necessary information and send it to HMRC online. Whilst the structure of PAYE remains the same, RTI fundamentally changes the way in which information is reported to HMRC. And these changes will affect all employers, regardless of whether you work in the public or private sector, are a large employer or a small one.
I wrote an overview of the main employer considerations for RTI for the ICB Newsletter back in March and since then, the pilot which began in April, has been progressing smoothly. It is reassuring to know that HMRC are one of the ten volunteer employers to join the pilot as this will allow them to see from the very start how the system will work and experience it from the employer's perspective. So far the pilot is working well and thousands of PAYE submissions have been received and processed by HMRC. There have been very few implementation issues to date and those that have occurred have been resolved quickly.
When the CIPP Policy team has been out and about talking to employers about RTI one of the questions we are frequently asked is if the Government Gateway will be able to handle the number of RTI returns that will be made. We have had assurance from HMRC that they are confident that it can accommodate RTI volumes. They have worked with their IT partners to ensure that the Gateway has sufficient capacity for PAYE returns to be submitted in real time. So far within the pilot submission times have been very quick. We were given one example where an employer submitted 12,500 employee records in 1 minute 50 seconds and that submissions from smaller employers have taken a lot less time.
Another no surprise question that comes our way is will the Employer Helpline be able to handle queries from employers at alignment? (Alignment being before an employer starts submitting RTI they must submit a file which details information of all employees who have been, and are, employed in the current tax year). HMRC responded with a yes and said that they have undertaken extensive consultation with their customers to help ensure that, as far as possible, RTI is designed around how employers operate. They have been closely monitoring submissions to validate expected responses and volumes. The purpose of the pilot is to test a range of support tools and allow HMRC to learn from how RTI works in practice, enabling them to identify IT issues and glitches that come to light and to hone their guidance and support materials accordingly. The pilot will enable HMRC to improve their guidance and support model in readiness for the main migration in April 2013.
One of the areas that HMRC has been highlighting in preparation for RTI is improving the quality of data. Believe it or not HMRC data is actually now more accurate than it has ever been before. When HMRC introduced the National Insurance and PAYE service (NPS) a few years ago, it identified many thousands of tax code errors. The resulting notifications of over or underpayments caused a media furore, but were actually just proof that although HMRC's systems had held incorrect data, the new system was identifying them and taking steps to correct individual records.
However, there is still work that can be done. HMRC analysis shows that the key issue is in matching the data sent by employers with their records. Around 80% of errors in employee data are due to an incorrect name, date of birth or national insurance number. This is information which can be collected and checked quite easily, but it is vital that it is also in the right format for RTI purposes.
HMRC is stressing the importance of putting good procedures in place now to ensure that employee data is correct and has offered the following advice on how data quality can be improved:
- An employee's/pensioner's date of birth should be recorded in an eight number format to include the day, month and full year of birth. Made up dates must not be used.
- An employee's/pensioner's full forename must be given, not just their initial. Forenames and surnames should be the right way round and spelt correctly.
- If an employee's/pensioner's NINO isn't known or there are doubts about the validity of the NINO supplied, the HMRC National Insurance tracing service can be used to locate the correct number. Never make a number up.
More information and guidance on RTI can be found at www.hmrc.gov.uk/rti/index.htm.
Automatic Enrolment
Starting from October 2012 all eligible employees will have to be automatically enrolled into either their employers' existing workplace pension scheme or an alternative qualifying pension scheme. Not all employers will have to comply with the new duties as soon as October 2012 as the changes are being rolled out over the next five or so years based on the largest to smallest PAYE schemes. The 'staging date' is the term used for the date that an employer's automatic enrolment duties start and is the first piece of information required in order to start planning. Some employers may want to align their staging date with other key dates in their financial or operational calendar, so to allow some flexibility; employers may choose a different staging date, as long as it is earlier than their staging date.
If you are familiar with The Pensions Regulator (TPR) website then you will know that they have produced guidance in the form of 7 steps to prepare for automatic enrolment. There are a couple of areas within this guidance that I would like to highlight.
The first is within the first step - Knowing your staging date: When to act: Getting ready. It is important that for PAYE schemes with more than 250 employees, you make an assessment of your workforce as at 1 April 2012 as this will determine your staging date. The staging date will be based on the size of the employer's PAYE scheme on 1 April 2012 and if the number of persons in an employer's PAYE scheme changes between 1 April 2012 and their staging date, the staging date will not be affected, even if the change is significant.
The second area is the very last section of the 7 step guidance, Safeguarding Individuals. This is because regardless of the size of your PAYE scheme, the law on the new employer duties and safeguards will commence from July 2012, even if your staging date is months and years away. The safeguards are intended to protect individuals, meaning there are certain things the employer must not do, both before a person starts working for them and once that person is a member of a pension scheme with that employer.
The safeguards have been put in place to protect entitled workers and jobholders, but the prohibited recruitment safeguard extends this protection to job applicants as well. This particular element of the legislation will come into force for all employers from July 2012, and not from an employer's staging date. So, if an employer has a staging date of 1 September 2015, they must ensure compliance with the safeguards detailed in TPR guidance from the date the law becomes effective in July 2012. The safeguards include:
- Stopping active membership of a qualifying scheme
- Unfair treatment of workers
- Inducements
- Prohibited recruitment conduct
TPR's 7 steps to prepare for automatic enrolment guide really is an excellent tool which details every stage of the automatic enrolment process and specifies all employer obligations in relation to the new regulations.