HM Revenue & Customs (HMRC) published a discussion paper titled “Improving the Operation of Pay As You Earn (PAYE)” in July 2010. PAYE has largely remained unchanged since its inception in the 1940s.  HMRC stated that the operation of PAYE continues to work for many employees but not for those with more than one job.  Furthermore 70% of new starters do not submit a P45 to their new employer.

The paper introduced two proposals for discussion:

 1. “Real Time Information” (RTI) which would provide HMRC with information about tax, NI, Student Loans and other deductions automatically each time a payroll is run. HMRC's preferred channel of communication for RTI would be BACS.  Unfortunately, EDI will close (date to be confirmed) as it will be unable to provide RTI data via BACS.

2 The second proposal was in the form of “Centralised Deductions” (CD). This would build on RTI information at a later date and HMRC would take the RTI data and calculate the tax and National Insurance, take into account any other deductions provided by the employer and send the balance (net pay) to the employee's bank account.

The discussion paper closed at the end of September 2010 and HMRC received more than 400 responses.  According to HMRC, approximately 75% of responses were in favour of RTI and about the same amount were opposed to Centralised Deductions.  It was decided by Ministers that RTI would go ahead after further consultation and Centralised Deductions would be shelved for the time being.

Further consultation took place in December 2010 until the end of February 2011.  The consultation document outlined the information that employers would have to submit under RTI which totalled 102 items.  Please note that further items have sinced been added to this list.

As a result of the July 2010 to September 2010 discussion process, RTI will proceed with a pilot scheme for a group of volunteer employers from April to October 2012.  Between October 2012 and April 2013 further tweaks will be made to the system as a result of the pilot scheme and then large employers will be brought onto RTI first, followed by medium size employers (50 to 249 on the PAYE reference) from April 2013 and lastly small employers (less than 50 on the PAYE reference) from August 2013.  All employers will be on RTI by October 2013 which will coincide with the implementation of Universal Credits by the DWP.

HMRC believe that the benefits of introducing RTI will be:

P45s and P46s will no longer be used by employers for starters and leavers as this informaiton will be included in the RTI submission.

Eventually employers will not need to submit P35/P14 annual returns.

Small employers (less than 50 on the payroll) who do not pay by BACS will be able to submit using HMRC software or an agent.
Payrolling Benefits In Kind are not included in the proposals, although this may be considered.

Following discussions with payroll software developers, HMRC has amended the implementation timetable following the pilot scheme (which remains unchanged).  This means that implementation of the live system has been delayed from January 2013 to April 2013 and employers will start to join RTI scheme regardless of size.

New revised RTI timetable:

• April 2012 to October 2012 – Pilot scheme.
• October 2012 to January 2013 – System changes arising from pilot and further testing.
• From April 2013 – employers start to use RTI
• October 2013 – Process complete.

Friday 13th May 2011 HMRC Announcement
Following further discussion with payroll software developers, HMRC has confirmed that they will be accepting RTI information via the Internet and EDI until April 2014.

Simon Parsons, Chair of IReeN commented on HMRC's announcement:

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