RTI payroll rules – trouble ahead for small limited companies?

A leading tax body says that many smaller companies may find complying with the new Real Time Information (RTI) payroll rules will be ‘impossible’.

The Institute for Chartered Accountants in England & Wales (ICAEW) says that despite new HMRC proposals to provide employers with extra time to submit payroll information, the new rules will put another burden on businesses.

What are the RTI changes?

Put simply, from April 2013, rather than providing HMRC with details of employees’ Pay As You Earn (PAYE) deductions at year-end, the RTI system requires employers to submit payroll data to HMRC on or before the time a payment is made to an employee.

Although the changes are expected to make life easier in some ways (e.g. no more end of year Employers’ tax returns – P35’s), all small companies will also have to ensure that their payroll systems will be able to cope with the new requirements.

Since the initial RTI plans were published, HMRC has said it will provide employers with an extra 7 days to submit the relevant information, but ICAEW suggests that there should only be a monthly requirement to provide the tax authorities with employees’ payroll data.

You can find out more in our summary of the upcoming RTI changes.

Potential problems for smaller companies

The ICAEW has provided several examples of scenarios where small businesses would find it difficult to comply with the proposed RTI rules when they come into force:

Firstly, some companies employing lower-paid workers may need to advance wages to these employees before ‘payday’ – these employers will only have seven days to submit an electronic return on behalf of each employees who have received advanced salary.

Secondly, most employers run monthly payrolls, but may need to employ staff on a short-term basis (such as a pub landlord) – they will have to submit a return for each short-term employee within seven days, representing a “significant increase in reporting obligations”.

Unsurprisingly, HMRC says it will issue penalties to employers who have been unable to meet the strict requirements of the Real Time Information changes.