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RTI ‘on or before’ rule eased again but HMRC shrinks exempt employers

December 9, 2013


HMRC today published details of a package of measures designed to assist small employers with RTI alongside the results of its research into the impact on employers and agents of the ‘on or before’ reporting rule. This included a further change to the ‘on or before’ rule, which will be revised for a limited period for micro employers.  However the size of employer that will qualify for the 24 month easing of the ‘on or before’ rule has been significantly reduced and from April 2014 it will apply only to employers with 9 or fewer employees.

From April 2014 only existing employers with nine or fewer employees (micro employers) at that date will be allowed to continue making use of the slight easement announced to the ‘on or before’ rule until April 2016.  HMRC says that the extension to the relaxation represents “the right balance between acknowledging the genuine difficulties that some employers and agents currently have, while being clear that all employers need to adapt to ‘on or before’ reporting by April 2016.”  The reporting rule change also moves the deadline for qualifying micro employers so that those employers making use of the reporting easement must make their RTI submissions ‘on or before’ the last pay day of the month, instead of by the end of the tax month in which payments are made as is currently allowed.

Paul Aplin, head of tax at AC Mole and technical committee chairman of the ICAEW’s Tax Faculty, said:

"While we would have preferred to see the existing easement (for businesses with fewer than 50 employees) extended beyond 5 April 2014, today’s announcement of extension of the easement for micro-employers to 5 April 2016 will help many thousands of small businesses."

In its web survey results report, HMRC says that the Department for Work and Pensions has concluded that monthly RTI reporting (where employees are paid more frequently) is not feasible because:

  • Monthly reporting would mean bigger gaps for some claimants between a fall in wages and a compensating UC payment.  This could cause significant difficulties for vulnerable claimants with additional processes needed to deal with high volumes of hardship cases;
  • The policy intent of ensuring work pays would be undermined if people receive less money in work than they would have done if they were not working;
  • In addition, there could be costs for employers in dealing with questions from anxious or confused employees.  Some employees may also ask their employer for a loan to help them through hardship.

The limited exceptions to the ‘on or before’ rule which currently exist under RTI (such as payments to harvest casual workers) will continue, full details of which can be found in the updated guidance HMRC have issued as part of this help package.  This guidance also includes some best practice advice from employers, agents and payroll professionals in response to frequently encountered problems with RTI, such as how to make corrections to reported amounts and how to manage RTI submissions around staff absence.  HMRC compiled this advice partly through a programme of visits to employer and agent businesses and partly through questionnaire-based research.

This research is comprised of external, independent research as well as HMRC’s own survey of employers, payroll providers and agents which was conducted over the summer.  The independent research results will be published early next year once analysis is completed, but the findings of HMRC’s own survey are included in this report.  The online survey, which particularly focused on the ‘on or before’ element of PAYE RTI, received more than 24,000 responses from employers, agents and payroll providers.

According to the HMRC report, around 50% of agents found ‘on or before’ reporting fairly difficult or difficult, and 79% thought that RTI had increased their reporting burden, despite feeling confident with RTI as a whole.  The biggest concerns for employers on RTI were the availability of someone to submit the information on the business’s behalf (27.4%) and unfamiliarity with RTI processes (28.4%).  The chief causes of difficulty with RTI reporting for agents were:

a.    Timeliness of [data] received from client
b.    Difficulty in confirming payments to be processed with client in time
c.    Quality of data received from client
d.    Additional cost to client due to increased frequency of reporting
e.    Irregular nature of payments to employees
f.     Availability of someone to submit the information.

Most employers and agents felt that the burden and cost of income tax and national insurance would stay the same rather than decrease in a year’s time under RTI, but a significant proportion of agents (39.4%) thought that their costs would increase.  These findings appear to contradict HMRC’s prediction that RTI would reduce the cost and burdens of payroll reporting for employers and agents.

Despite its original undertaking to do so during its ‘pilot’ phase of RTI from April 2012 until it was made mandatory for all employers in April 2013, as more data became available to it, HMRC has never updated its original estimate of the cost saving RTI would deliver for employers.

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