The system as it exists today, allows companies to delay payments without a penalty till the end of its financial year when it makes its annual tax declaration. Companies have therefore been able to underpay PAYE to relieve cashflow and settle other pressing financial obligations, paying the tax man the shortfall at year end. This system has given HMRC little control over payments as PAYE, NI & VAT are no longer preferential creditors, and this new system will improve the HMRC debt collection process as well as its cashflow.
With the new system, however, employers will no longer be able to conserve cashflow by making lower liability payments to HMRC and if they do, may incur considerable penalties. To avoid a potential crisis, it is imperative for businesses to start preparing regular management accounts and cash flow forecasts to ensure they can pay their PAYE/NI liabilities by the due date, and that there is very little strain on cash. In addition to possible penalties that many be incurred and the potential cash flow risk, there is also very little margin for error due to the ‘real time’ status of RTI, for example, if an employer fails to remember a due pay increase, the company will be unable to recalculate the payslip if the RTI declaration has already been made.
There are also potential liabilities if an employer submits incorrect data regarding names, addresses and dates of birth so it is important to address any inaccurate or incomplete records now. Interestingly, companies that employ casual, temporary and irregular staff also have to submit their information electronically, even if no tax has been deducted.
While this new process was initially seen as a burden, cleansing employee data has given companies valuable information about staff, some of which didn’t exist that can be used in a variety of ways and is now an incentive to cleanse other forms of data which a company holds.
The challenge remains for SMEs to deal with the initial administrative burden of updating company records in the few weeks left , make plans to take on effective cashflow management strategies for the year ahead as well as get access to vital financial data. SMEs being susceptible to changes in legislation may find these changes quite daunting and need to carry out audits to ensure that they meet the RTI requirements well before April 6th. There are many flexible and outsourcing service providers that can be considered as cost effective options for the SME market to help them deal with the RTI change, if they are unable to manage this themselves.
To avoid potential penalties or an unbearable administrative burden, companies should already have taken specific action to get ready for this change, and if you haven’t, here are things you should be doing now:
1. Get your payroll software sorted: A payroll software is to be used to send the PAYE/ NIC information electronically as part of the routine process. You will need to update your software, or acquire one. Alternatively you can use a payroll provider - speak to an accountant, payroll bureau or a financial management provider.
2. Complete your employee and pensioner details: Check that all the employee data you hold in your payroll records is complete before your company changes to PAYE in real time, especially names, addresses, National Insurance Number and dates of birth.
3. Register for PAYE online if you haven’t done so already
4. In terms of transaction processing, check that you do not have to take any action regarding your BACs supplier. Do not use temporary National Insurance numbers, ensure processing dates match payment dates, check that you can process advances, Check that you can submit a full payment summary (The first FPS must report details of pay and deductions and year-to-date figures for all employees who have been in employment since the beginning of the tax year. It must also include employees who have not been paid at all as well as those who have left since the beginning of the tax year).
5. Visit the HMRC site for a complete list of what needs to be done at www.hmrc.gov.uk/
The only employers exempt from electronic RTI submissions and permitted to submit RTI on paper are employers whose religious beliefs are incompatible with the use of electronic communications and those who employ care professionals to provide services to the disabled or elderly in their home.
If you need to speak with someone about preparing and using regular management accounts, or discuss a potential cash flow problem, financial management support and advice for your business, contact us at the eFM Network (e Financial Management). Email firstname.lastname@example.org , email@example.com or see our team of Finance Directors & specialists at www.efm-network.com. To request a confidential meeting, please call: 01582 516300