Real Time Information & Universal Credit
UK employers’ obligation to report PAYE in real time to HMRC every time they pay their employees has been mandatory since April 2013.
For the majority of employers the process of reporting over the internet via the Government Gateway using commercial payroll software or HMRC’s Basic Payroll Tools (BPT) has worked well and filing ‘on or before’ the date of payment has become routine.
The issue of RTI data quality and the accuracy of employer PAYE data being captured by HMRC still appears to present a significant challenge however. HMRC have acknowledged that 10% of all PAYE schemes have data quality issues, directly affecting individual personal tax records.
Duplicate employment records where HMRC’s systems record employees details more than once for the same job, incorrect tax codes, problems reconciling employer PAYE liabilities to their PAYE accounts and very high numbers of P800 notices advising taxpayers that they have paid the wrong amount of tax have been extensively reported in PayeRti.org’s news pages.
PayeRti.org member organisations and other accountancy bodies continue to represent the interests of employers to HMRC to ensure the burden and impacts of RTI are minimised for employers now that RTI data is being used for employee Universal Credit, nationally.
UK welfare reform and the roll-out of Universal Credit across the UK, which began in February 2015, depends on RTI. Universal Credit uses the PAYE information that employers supply to HMRC. When HMRC systems are notified by DWP about a UC claimant, HMRC pass information about their pay to DWP. The earnings data reported by a claimant’s employers is shared by HMRC up to 4 times each day for all employees in UC.
RTI reported today may be used the same day to calculate an employee’s, or their family’s, UC award. This is why the obligation to report RTI before or at the time of payment to employees, the 'on or before' reporting rule is there: The operation of Universal Credit depends on it.
UC is a variable benefit and fluctuates according to the combined earnings of the individual claimant and their partner. The timeliness and accuracy of RTI earnings data is essential to safeguard employee’s entitlements and income.
The legal obligation to report PAYE in real time, is now enforced by HMRC’s automatic electronic penalties issued to all employers where they do not report as HMRC expects.
Employers have to report RTI ‘on or before’ the date they pay their employees.
RTI however means employers are not only responsible for reporting the PAYE information on behalf of their employees on which their personal liability to tax is calculated, as previously, but also their entitlement to Universal Credit and other social protections.
Employers will not know which of their employees are affected by UC or are claiming it directly, unless their employees choose to tell them. Employees may be involved in the UC programme indirectly because, for example, their partner is returning to work: this is because UC is always assessed on a couple’s combined income and personal circumstances, as a couple.
For employers, ensuring your PAYE reporting and compliance arrangements follow best practice are essential not only to protect your business but also your employees.
UC allows part time workers to work more than 16 hours a week increasing their availability to work without losing benefits. It rewards employment. This incentive to work is called the claimant’s Work Allowance (£111pm for an individual claimant) and is money from DWP they can keep even though they are in work. So payments from DWP cannot fully compensate employees for RTI earnings not captured in time.
A claimant’s entitlement to UC is assessed in a personal claim period that has no relation to their or their partner’s employers’ payroll cycle, so incorrect or delayed RTI reporting by an employer will result in financial loss to the claimant as earnings for UC are not cumulative (as they are for HMRC).
HMRC shares employer RTI data with DWP for the purposes of calculating Universal Credit payments for your employees, exactly as received, and regardless of how the employer pays employees.
However, in the event that an employee claimant queries or challenges their UC award with DWP, DWP must refer the employee claimant back to their employer. This applies unless the employer has paid their employees by RTI BACS (or direct BACS), using a BACS Service User Number, which allows HMRC’s systems to validate the employer’s RTI data on receipt by reference to the actual payments to employees.
This validation of employer RTI data is performed by HMRC when they report RTI, where they pay by RTI BACS, but not otherwise.
For employers who do pay employees this way, their payroll software matches RTI returns and payments automatically, each time RTI is reported and employees paid, by inserting random, unique codes into both. This is known as RTI BACS hash matching, or RTI BACS. It validates the RTI earnings data for every employee, individually.
HMRC tell DWP systems when an employer’s RTI data has been validated - by referencing their actual payments to employees – which allows DWP to deal directly with the claimant’s query.
HMRC and DWP both say that it is “best practice advice” for employers to pay employees this way. It is the only way in which employers can report RTI without the risk of recourse from employees who, or whose partners, are in Universal Credit.
Paying employees by RTI BACS is not compulsory.
If, as an employer, you're contacted by HMRC Debt Management & Banking for payment of PAYE you do not consider is owed and your liability to PAYE according to HMRC is different to the RTI returns you have sumbitted - and you cannot reconcile your and their figures - it is essential you formally request HMRC to place your PAYE scheme in formal dispute.
PayeRti.org Help? pages provide a post code look-up to accredited accountants and PAYE agents that can provide best practice PAYE guidance and RTI BACS payment services.
The latest information and best practice advice from HMRC and DWP can be found online in HMRC’s Employer Bulletins or DWPs Universal Credit pages, at www.gov.uk
DWP’s information for employers can be found here:
Universal Credit and employers: frequently asked questions
HMRC's RTI BACS reference document can be found here:
RTI: The Hash Cross Reference Process & Bacs Payments
If in need of assistance PayeRti.org recommends you speak to an accountant or professional payroll provider.