Under RTI, employers and pension providers will tell HM Revenue and Customs (HMRC) about tax, National Insurance contributions (NICs) and other deductions when or before the payments are made, instead of waiting until after the end of the tax year.

HMRC will need to do fewer an end of year recalculations for individuals to determine if underpayments or overpayments have arisen. RTI will apply to the operation of PAYE only, so will be administered by employers.  It also means that employers will be giving HMRC advance notice of the amounts of tax and NIC they will be paying each month or quarter.

Employees need take no action, but anyone running a payroll scheme for employees needs to ensure that their software is up-to-date and capable of RTI reporting.  The RTI scheme will be implemented from April 2013, and compulsory for all employers by October 2013.

The Main Change

Employers’ end of year returns P35/P14 will not be necessary, although employees will still need to be issued with a P60.  Instead a full report will be sent to HMRC electronically each time a payroll run is done.

The Process

All employers will undergo an employer alignment submission (EAS), with details of everyone employed during the tax year.  This is to ensure that HMRC and the employer hold the same information before RTI submissions begin.