In Britain, HMRC has introduced new guideliness for businesses that means you have to submit wage and deduction information as Real Time Information (RTI) each time an employee is paid. This handy guide from www.freeagent.com helps small businesses and freelancers make sense of what the changes may mean for them - visit their website to dowload a copy of the guide.

1. Getting ready for RTI
A FreeAgent guide for small businesses and freelancers
RTI
Made with love by
March 2013

2. What is RTI?
RTI stands for Real Time Information, and it’s the new way to report wages, salaries,
PAYE and National Insurance to H.M. Revenue & Customs (HMRC). The big change
is that, from 6th April, you will need to report this information to HMRC in real time.
There are no changes to the amount of PAYE or National Insurance that you
have to deduct from your payroll, nor to the dates by which you have to pay
them over to HMRC. The only thing that is changing is the reporting process.
When is RTI being
GLOSSARY
introduced?
RTI Real Time Information
You’ll need to start filing
PAYE Pay As You Earn
Real Time Information
FPS Full Payment Submission
from 6th April 2013.
EPS Employer Payment Summary
HMRC H.M. Revenue & Customs
Why is RTI being
introduced?
RTI is being introduced because the Government needs up-to-date information
about people’s pay in order to calculate the Universal Credit – the basic
social security benefit – correctly. Universal Credit comes in later in 2013.
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3. Does RTI apply to me?
RTI applies to anyone who is registered for PAYE (or needs to be). This means:
Yes, if you employ staff (see below for a few exceptions)
Yes, if you do your work through a limited company
(assuming you pay yourself a salary or reimburse expenses)
No, if you are a sole trader or a partnership that does not employ staff.
If you are a director of a limited company, remember that even if your company
doesn’t pay you a salary, you still need to operate RTI if you receive any expense
payments. Because you must report these expenses on form P11D each
year, you need to have a PAYE scheme in place and thus fall under RTI.
I only employ casual staff or staff without PAYE
deductions. Does RTI still apply to me?
Previously you could keep low-paid employees off the PAYE system,
and only use PAYE for those that required it. Under RTI, if you have any
staff for whom RTI applies, then you have to apply it for all staff.
RTI doesn’t apply if all of your staff:
yy do not receive expense payments.
yy do not receive benefits that are not paid in cash (for
example, health insurance or company cars).
yy are paid below the Lower Earnings Limit for National Insurance.
This will be £109.00 a week for 2013/14, or £472.33 a month.
yy do not need PAYE deducting. You must deduct PAYE if you
have a tax code for your employee, for example:
•• if you are using a tax code when RTI comes in.
•• if your employee gives you a P45.
•• if your employee gives you a P46 with box C
ticked in the bottom left-hand corner.
Otherwise, RTI does still apply.
These exceptions might apply, for example, to casual staff, or
students, or people who only do a couple of hours a week.
Note for limited Don’t forget though, if you are the director of a limited
company directors company and your company needs to operate RTI for you, your
company will also need to operate RTI for all your staff.
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4. What will I have to do if RTI applies to my business?
You will need to make a Full Payment Submission (FPS) every time you pay
an employee, either at the time you pay or before. You need to do this
online, using HMRC’s own submission tool, or a service like FreeAgent.
You will need to file an Employer Payment Summary (EPS)
for any notifications to HMRC that are not specific to a
particular employee but have to be taken into account.
You will not need to send the end-of-year forms P14 or
P35 to HMRC after the tax year ended 2012/13.
You will not need to send P45’s or P46’s for leavers and
starters to HMRC (this information is given on the FPS).
P45’s should still be given to leaving employees.
There is no change to the way that you deduct PAYE and NI from
Good news! your payroll or your requirement to pay it to HMRC each month.
Some things
aren’t changing! There is also no change to the system of coding notices, and you should
still hand your employees a P60 form at the end of each tax year.
Anatomy of a Full Anatomy of an Employer
For more details Payment Submission Payment Summary
about FPS and EPS,
please follow these Employer details Employer details
links to the HMRC website Reference numbers, including Reference numbers, including
your HMRC Office number, your HMRC Office number,
FPS - http://bit.ly/hmrcFPS PAYE Reference, and Employer PAYE Reference, and Employer
EPS - http://bit.ly/hmrcEPS Accounts Office reference. Accounts Office reference.
Employee details Notifications to HMRC
Details of the employee, Use the EPS to notify HMRC about
including National Insurance anything that is not specific to a
number, date of birth, etc. particular employee but has to be
taken into account when calculating
Income Tax year
the monthly PAYE liability. For example,
The income tax year for this
you would use the EPS to notify HRMC:
FPS, for example 2013/14.
yy that you paid no salary to any
Employee pay details
employees for a particular month.
Details of the payment, including the
pay date, frequency, and taxable pay. yy of any deductions under
the Construction Industry
National Insurance contributions
Scheme (CIS).
Details about the National Insurance
contributions for this employee. yy of any recoveries of statutory
sick pay or parental pay.
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5. How does RTI apply to me?
I have a one-person limited company with no other employees
As the director of a limited company, PAYE and RTI applies to
you even if you are the company’s only employee.
RTI will apply to salary payments that the company makes to you.
One -person
RTI will not apply to:
limited company
yy dividends
yy rents
yy business expenses that aren’t taxable and are reported on a P11D form
yy loans (unless they are an advance on your salary)
yy any other payments to you
You will need to continue operating PAYE and NI as at present. All that RTI changes
is the way that this is reported to HMRC. However, you will need to file a report to
HMRC every time you make a salary payment, not just at the end of the year.
I run a one-person limited company inside IR35 (the intermediaries rules)
If you work through a limited company but are an employee of your clients in all but
name, you fall under IR35 rules, which impacts how the company can pay you.
If you fall under IR35 rules, there are two approaches that you can take:
One-person limited 1. Your company can pay you a salary of at least 95% of the money coming
company inside IR35 in to the company, less expenses. If you do this the system operates
in the same way as for any other one-person limited company.
2. You can operate PAYE by calculating a ‘deemed payment’ each April
5th (or earlier if your assignment ceases), and paying PAYE on that. To
calculate this payment, use the “deemed payment” calculator on HMRC’s
Basic PAYE tool. If you do this you will only have one payment to report
using RTI, and it must be reported on or before April 5th (or the earlier
date). However it can be an estimate if you don’t have the final figure. You
must tell HMRC that it is a deemed payment estimate, and send them
any corrections by January 31st. We advise ringing HMRC on 08457
143143 to check that you are doing this the way that they want it.
You can read more about IR35 at http://hmrc.gov.uk/ir35.
I have employees as a sole trader, partnership,
or director of a limited company
Continue operating your payroll as now, deducting PAYE and paying
it over to HMRC. The main change that RTI will make is that you will
Any company need to make a Full Payment Submission report every time you pay
with employees your employee(s), either on or before the date of payment.
Starters and leavers are dealt with on the FPS. You will no
longer need to send P45’s or P46’s to HMRC, although you
should continue giving P45’s to departing employees.
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6. How can I prepare for RTI?
DEADLINE: Register your business with HMRC: if you have started a new business
6th April and haven’t already registered with HMRC for a Government Gateway ID,
register today to make sure you have it in place. It can take up to seven
business days for your Government Gateway ID to arrive. Register at
https://online.hmrc.gov.uk/registration/newbusiness/introduction
Register for PAYE: If you haven’t already, ensure that you register as an
employer with HMRC. http://www.hmrc.gov.uk/paye/intro/register.htm
Make sure that you have all the necessary details of your employees.
You will not be able to file reports unless you have, for each employee, their:
yy first and last names
yy date of birth
yy gender
yy address including postcode
yy National Insurance number (or passport number if not known)
If you can’t get your employee’s National Insurance number in
time for your first payment, you can include a National Insurance
number verification request in a payroll submission.
For more details, visit http://hmrc.gov.uk/payerti/
employee-starting/verify-nino.htm
Get your software in place: You can use HMRC’s free software to
file RTI returns, or another provider like FreeAgent who integrate
with HMRC. See the following page for a breakdown of what
features and choices you have with each filing option.
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7. RTI filing
tools
HMRC’s PAYE Tools software is FreeAgent’s online accounting
available for free for any small business software provides payroll and RTI
with nine or fewer employees: management as well as accounting,
project and time tracking,
yy Desktop software - Runs
invoicing, expenses, and more.
on Windows, OS X, Linux
yy Web-based software - works
yy Available at http://www.
on desktops and mobile
hmrc.gov.uk/payerti/payroll/
bpt/paye-tools.htm#5 yy Available at www.freeagent.com
yy RTI-ready version available yy RTI-ready from 6th April 2013
from 2nd April 2013
yy Full Payment Submission
yy Full Payment Submission (FPS) supported
(FPS) supported
yy Employer Payment Summary
yy Employer Payment Summary (EPS) supported
(EPS) supported
yy Calculate tax and NI
yy Calculate tax and NI contributions for employees
contributions for employees
yroll
FreeAgent’s pa
submission
What else can you
do with FreeAgent?
Send professionally designed invoices
and estimates. You can even set invoices
to chase payment themselves!
Work on the go. Upload your expense
receipts to FreeAgent from your mobile
and track time using our mobile timer.
Automatically import transactions from
your bank account. To save even more
time, FreeAgent automatically recognises
and reconciles similar transactions.
Submit VAT returns directly to HMRC,
forecast how much tax you’ll owe, and
track due dates in your calendar.
Find out more at freeagent.com
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8. Things to remember
yy Don’t forget that you have to make a FPS submission every time
Don’t you pay your employees, on or before the date of payment.
forget!
yy Don’t forget that in 2013 only you will still need to submit
forms P14 and P35 to HMRC by 19th May.
yy If you are a limited company director whose company has a PAYE scheme
because of reimbursed expenses from your company, for months where
your company pays you a salary below the Lower Earnings Limit of £109/
week, you must still submit an EPS by the 19th of that month.
yy When an employee leaves your business make sure you mark this on your FPS.
yy When you submit your FPS, double-check that HMRC have sent
you a confirmation email and save this as proof of submission.
yy There will be penalties for filing inaccurate returns, so make sure to
double-check! If you do make a mistake, call HMRC straightaway on
08457 143143 and ask them what to do. You are least likely to be charged
a penalty if you make a mistake and talk to them about it straight away.
Final Checklist: Getting ready for RTI
Register for PAYE online if you’re not already registered
(If you are already submitting PAYE reports, you’re sorted.)
Record all of your employee details:
yy first and last names
yy date of birth
yy gender
yy address including postcode
yy National Insurance number (or passport number if not known)
Select your submission software and enter your employees into the system
...and you’re ready to go!
Take care of business with FreeAgent
FreeAgent is an online accounting system designed for small businesses and
freelancers. As well as managing your payroll, FreeAgent lets you forecast tax
commitments, track your profit and cashflow, send professionally designed
invoices, automatically chase payment, track time and manage expenses.
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9. About the author
David Kirk is an independent Chartered Accountant and Chartered
Tax Adviser who specialises in PAYE and National Insurance.
David says: “I have been fortunate in having been asked to advise on
RTI at an early stage, which has taught me how much less stressful it
is to prepare in good time for changes like this. It looks complex, but
is not as bad as it sounds. The key is to prepare in advance.”
For further information
hmrc.gov.uk/rti HMRC’s website section on RTI
08457 143143 HMRC’s employer helpline for general PAYE enquiries.
Open Monday to Friday 8.00 – 20.00,
and on Saturday 8.00 – 16.00.
08456 055999 HMRC’s on-line services helpdesk for help
with HMRC software and on-line submissions.
Open Monday to Friday 8.00 – 20.00,
and on Saturday 8.00 – 16.00.
0800 288 8691 FreeAgent information and support
available Monday to Friday 9.00 – 17.00.
You can also email us:
support@freeagent.com
Disclaimer
This guide is not a substitute for advice from a professional accountant
tailored to your own business. Any information presented does not constitute
accounting advice. If you need accounting advice, try our directory of FreeAgent
friendly accountants here: http://freeagent.com/partners/accountants
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