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Paying HMRC correctly

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Since April 2013 and the introduction of RTI (Real Time Information), HMRC know exactly what each employer owes them every month and are quick to chase for late payments or apparent underpayments. We have seen many cases recently of our clients being sent demands for underpayments when in fact they have paid the correct amounts, but the payments have been misallocated to previous tax years due to the incorrect PAYE reference suffix being used when they make payments. It is vital that you use the correct PAYE reference each time you make a payment to HMRC.

Each employer has a 13 character Collection or Accounts Office reference which will be given by HMRC when a new PAYE scheme is set up and will be shown on the payslip booklet. For example 123PA00012345. This 13 character reference will never change, however the all important suffix will change each month, as it signifies the tax year and tax month your payment refers to.

The 4 digit suffix you need to add on the end of your Accounts Office reference will be made up of 2 digits for the tax year and 2 digits for the tax month. For tax year 2013-14, the suffix is 14 and for April the suffix is 01 for the first tax month of the year, May is 02 etc.

There is only one account now for all payments which is AO Cumbernauld, sort code 08-32-10, account number 12001039. Payments by cheque should be sent with the relevant payslip from your HMRC paying in booklet (and we recommend you write the full 17 digit reference on the back of your cheque) and received by HMRC no later than 19th of the following month or 22nd if paying electronically.

By ensuring you use the right PAYE reference each month will avoid late payment notices, misallocation of funds to wrong tax years and no phone calls from HMRC!

RTI…Is it working so far?

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Since RTI started, we are told that the majority of employers have come on board and have been submitting successfully and all is working well. However, for many employers this has not been the case, and although they have reported RTI correctly, they have been inundated with apparent underpayments due to discrepancies between the employers Full Payment Submission (FPS) and HMRC’s NI and PAYE service (NPS) which shouldn’t happen. We were all told that whilst RTI was bedding down there would be no penalties for this tax year, yet several employers have been pursued for late payment penalties, fines and threats of interest.

As a bureau, we correctly submit the FPS payroll report for RTI on each pay day; the client pays HMRC the correct amount on time, but somehow HMRC records appear to show different totals and immediately inform the employer that they have an underpayment due. We have been inundated with calls from HMRC and clients asking us to explain why HMRC claim they owe more than they actually do. We don’t have the answer and HMRC’s Debt Management division cannot provide us with that detail, as all they have is a total owing.

In its annual report to HMRC, the National Audit Office identified some shortcomings in the RTI project as it went live. By mid-May this year, 10,000 duplicate employee records had already been created, with HMRC apparently unable to ascertain the root cause. The system went live with shortcomings identified in relevant system capturing and reconciling data and payment coming in. There is no budget for contingency and corrective work where errors are discovered.

Employers are being ask to look on their employer dashboard on the HMRC website, but HMRC have errors in their systems, and the amount shown on the employer dashboard is not necessarily the amount reported on the FPS. It’s the amount tallied from HMRC NPS records. Many employers are finding their cases being passed to HMRC’s technical department, but we haven’t heard back from them so far….HMRC need to fix their problems and reconsider their policy of pursuing employers appropriately.

HMRC confirms number of RTI non-filers

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Hundreds of thousands of companies have so far failed to report Real Time Information (RTI) to HMRC. HMRC say that 300,000 schemes have not made the switch to RTI as at 5th June. As a result those companies have been sent letters informing them of their legal requirement to have filed PAYE in real time from April 2013 and that they must start reporting now to avoid penalties in future. The majority of these 300,000 employers may not have any employees, but if the PAYE scheme is no longer needed employers should contact HMRC so they can close their records. If you want to keep your PAYE scheme open but you have not paid anyone at all, you still need to report this to HMRC using RTI and if no PAYE/NIC payment is due, you need to inform HMRC of that too. For help on getting started, go to hmrc.gov.uk/act now. Automatic late filing penalties will apply in 2014-15.

Wrong Payroll Dates for RTI?

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Now that RTI is in it’s third month since going live, the reporting of PAYE in real time has highlighted to HMRC that some employers are not operating PAYE correctly. Employers must ensure that PAYE is calculated and reported according to their actual payment date: NOT the date the payroll is run and NOT the period end date the work was done by your employees. For example, if a monthly payroll is processed on 5th June for work period ending 31st May, but paid on 10th June, the full payment submission should give the payment date as 10th June, which falls in the tax month running 6th June to 5th July (i.e. tax month 3).
One effect of misaligning is that deductions of tax and NIC from a payment made to an employee may be attributed to the wrong tax month and possibly even a wrong tax year. To address the issues HMRC have published guidance, which can be found here. This sets out steps to be taken and provides guidance in circumstances where an employer decides to change the date employees are paid in order to eliminate the misalignment.

Budget News

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Personal Allowances
The latest budget has confirmed that the basic personal allowance will be increased from the current £8,105 to £9,440 for 2013/14. The Coalition Government plan to ultimately raise the allowance to £10,000 from 2014/15. The additional tax rate of 50% is reduced to 45% for 2013/14 for taxable income over £150,000.

National Insurance Employment Allowance
The Government will introduce an allowance of £2000 per year for all businesses and charities to be offset against their Class 1NIC liability from April 2014. The allowance will be claimed as part of the normal payroll process through RTI (Real Time Information)

New Scheme for tax free Childcare
New tax incentives for childcare have been announced. To be eligible, families will have to have all parents in work, with each earning less than £150,000 a year, and not already receiving support through Tax Credits or Universal Credit. The relief will be 20% of the childcare costs up to a total of £6,000 per child per year. The scheme will therefore be worth a maximum of £1,200 per child. The scheme will be phased in from autumn 2015. The current system of employer childcare will continue to be available for current members or they can switch to the new scheme.