Getting Ready for RTI: A FreeAgent guide for small businesses and freelancers by Henry Richards

Getting ready for RTI A FreeAgent guide for small businesses and freelancers

RTI

Made with love by March 2013

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 introduced? You’ll need to start filing Real Time Information from 6th April 2013.

GLOSSARY RTI PAYE FPS EPS HMRC

Real Time Information Pay As You Earn Full Payment Submission Employer Payment Summary 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.

Try it now for free at freeagent.com

Getting ready for RTI: 2

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.

do not receive benefits that are not paid in cash (for example, health insurance or company cars).

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.

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 company directors

Don’t forget though, if you are the director of a limited company and your company needs to operate RTI for you, your company will also need to operate RTI for all your staff.

Try it now for free at freeagent.com

Getting ready for RTI: 3

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.

Good news! Some things aren’t changing!

For more details about FPS and EPS, please follow these links to the HMRC website FPS - http://bit.ly/hmrcFPS EPS - http://bit.ly/hmrcEPS

There is no change to the way that you deduct PAYE and NI from your payroll or your requirement to pay it to HMRC each month. 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 Payment Submission

Anatomy of an Employer Payment Summary

Employer details Reference numbers, including your HMRC Office number, PAYE Reference, and Employer Accounts Office reference.

Employee details Details of the employee, including National Insurance number, date of birth, etc.

Notifications to HMRC Use the EPS to notify HMRC about anything that is not specific to a particular employee but has to be taken into account when calculating the monthly PAYE liability. For example, you would use the EPS to notify HRMC:

Income Tax year The income tax year for this FPS, for example 2013/14. Employee pay details Details of the payment, including the pay date, frequency, and taxable pay. National Insurance contributions Details about the National Insurance contributions for this employee.

Try it now for free at freeagent.com

that you paid no salary to any employees for a particular month.

of any deductions under the Construction Industry Scheme (CIS).

of any recoveries of statutory sick pay or parental pay.

Getting ready for RTI: 4

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 limited company

RTI will not apply to: yy yy yy yy yy

dividends rents business expenses that aren’t taxable and are reported on a P11D form loans (unless they are an advance on your salary) 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 company inside IR35

1. Your company can pay you a salary of at least 95% of the money coming 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

Any company with employees

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 need to make a Full Payment Submission report every time you pay 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.

Try it now for free at freeagent.com

Getting ready for RTI: 5

DEADLINE: 6th April

How can I prepare for RTI? Register your business with HMRC: if you have started a new business 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 yy yy yy yy

first and last names date of birth gender address including postcode 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.

Try it now for free at freeagent.com

Getting ready for RTI: 6

RTI filing tools HMRC’s PAYE Tools software is available for free for any small business with nine or fewer employees: yy

Desktop software - Runs on Windows, OS X, Linux

Available at http://www. hmrc.gov.uk/payerti/payroll/ bpt/paye-tools.htm#5

RTI-ready version available from 2nd April 2013 Full Payment Submission (FPS) supported Employer Payment Summary (EPS) supported Calculate tax and NI contributions for employees

FreeAgent’s online accounting software provides payroll and RTI management as well as accounting, project and time tracking, invoicing, expenses, and more. yy

Web-based software - works on desktops and mobile

Available at www.freeagent.com

RTI-ready from 6th April 2013

Full Payment Submission (FPS) supported

Employer Payment Summary (EPS) supported

Calculate tax and NI 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

Try it now for free at freeagent.com

Getting ready for RTI: 7

Things to remember Don’t forget!

Don’t forget that you have to make a FPS submission every time you pay your employees, on or before the date of payment.

Don’t forget that in 2013 only you will still need to submit forms P14 and P35 to HMRC by 19th May.

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.

When an employee leaves your business make sure you mark this on your FPS.

When you submit your FPS, double-check that HMRC have sent you a confirmation email and save this as proof of submission.

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 yy yy yy yy

first and last names date of birth gender address including postcode 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.

Try it now for free at freeagent.com

Getting ready for RTI: 8

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

Try it now for free at freeagent.com

Getting ready for RTI: 9