As the next step in their project to modernise the PAYE system, HMRC have published draft regulations to amend the relevant income tax (PAYE and Construction Industry Scheme) and social security contributions regulations.
Essentially the amendments will enable the collection of real time information (RTI) on employees' income tax and National Insurance Contributions (NICs) liabilities. At present employers report details of payments and deductions at the end of the year, whilst tax and NICs are transmitted to HMRC each month. Under RTI, information about payments, tax and other deductions will be collected and transmitted to HMRC every time an employee is paid.
Further changes proposed by the draft regulations include:
- An employer will no longer be required to transmit tax information (currently on P45 or P46) to HMRC when an employee joins or leaves a company. This information will be included on RTI returns as a matter of course.
- A P45 will become a thing of the past, as the draft regulations allow employers to provide information to departing employees on a 'leaver statement'. This statement could take the form of a final pay slip provided it includes all the requisite information.
- The number of returns to be submitted by employers at the end of a tax year will be reduced.
- Should an employee fail to provide information within the requisite time period or the employer fails to verify the information, tax must be withheld on a non-cumulative basis as if the employee was entitled to no allowances (i.e. employers should apply a 0T code when deducting tax).
It is worth noting that the penalty regime currently in place for the late filing of end of year tax returns (P14 or P35 returns) will be extended to apply to the late filing of RTI data during the year from 2013-14. HMRC will publish draft legislation on this in due course. This is in line with HMRC's vision that employers who are not in RTI during 2012-13 will be required to join RTI from April 2013.
HMRC estimate that there will be a cost benefit to employers due to the reduction of some administrative burdens. However, any saving must be offset against the costs involved in implementing the new requirements. There is no estimate of these costs available at this stage. Costs for employers are also expected at the point when employers begin to submit RTI. In fact, HMRC recognises that there will be substantial transitional compliance costs, resulting from the need
- to amend data held about existing employees;
- to update payroll software and processes; and
- to train and familiarise staff with the new processes.
Being prepared and starting implementation as early as possible may help to reduce these costs for employers.
For further details about the proposed regulations, please visit HMRC's website. Comments on the draft regulations should be submitted to HMRC by 9 January 2012.
Mark Gearing, Partner, Head of Employee Share Plans, in Fieldfisher’s Corporate & Finance practice and the Equity Incentives practice.
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