Pay As You Earn – Real Time Information

Pay As You Earn (PAYE) is the system set-up by HMRC to handle the collection of Income Tax and National Insurance by employers on behalf of employees.

HMRC have recently made one of the biggest adjustments to the Pay As You Earn system since 1994. This new law requires employers send exact information about every employee working for them directly to the HMRC for review on a monthly basis. This process is generally handled by whoever carries out your payroll activities. The following is a basic summary of what the new law is and how it is different from previous legislation.

What is the New Law?

The new law is named RTI (Real Time Information) and it has recently become a headache for contractors and corporate business owners everywhere. Real Time Information requires businesses to report upon their employee’s earnings every time they pay employees. Whether an employee is paid daily, weekly, or monthly does not make a difference. Obviously this presents unique challenges. More information will now be supplied to accountants on a monthly basis increasing the work load and possibly the price of accounting altogether.  Employee’s earnings, tax already deducted, other payments and NICs are to be reported on or before payment is made to employees, according to the new law.

How is it Different from past Legislaton?

In times past, employers and businesses were allowed to file their PAYE information on employees once a year through an online website. Now they are required to submit all of this information on a pay-to-pay basis and can only do so through electronic forms. This has major implications from a tax planning perspective for Directors as it is no longer possible to simply decide at the end of the year the most tax efficient salary for you as a Director.

Accounting for these changes will take some getting used to but your Chartered Accountant can help you to ensure that you are compliant with these requirements. Your Chartered Accountant can also sit down with you before the year to ensure your tax planning is as effective as possible.

Insight Accountants can handle all aspects of payroll and tax planning to ensure seamless advice that keeps pace with changes in legislation.