Universal credit: RTI and Universal Credit
What is Real Time Information?
What must be reported?
How does an employer report RTI information?
Relaxation of the rules for small businesses
Exceptions to RTI
Why is RTI important for UC?
How is RTI data used for UC?
Problems with RTI data
Becoming an employer comes with certain obligations in respect of tax and national insurance. Generally employers are tasked with collecting tax and national insurance from their employees pay and sending that money to HM Revenue and Customs (HMRC).
In the past, HMRC required employers to send payments of tax and NI to them frequently and then report those figures after the end of each tax year on a series of forms.
On 6 April 2013, HMRC introduced a new system of real time reporting for employers. It is often called the RTI (Real Time Information) system.
It means that employers must send details to HMRC at the time they pay their employees. This information must be sent to HMRC electronically as part of their routine payroll process.
Employers must report payroll information to HMRC. This includes the employees pay, tax and deductions. Employers will need to report details of all employees they pay, no matter how much they are paid and how often they are paid (for example once a year).
(However if ALL employees are paid below the NIC Lower Earnings Limit of £112 per week AND that employment is their only job an employer will not strictly have to register a PAYE “scheme” and thus no RTI submissions will be due), More information is available on the GOV.UK website.
Employers will need to send submissions to HMRC. There are two types of submission – an FPS (Full payment submission) and EPS (Employer payment summary).
An FPS must be sent to HMRC on or before the date of payment to the employee. It records the year to date figures of tax, national insurance and pay and also the totals for that particular pay period.
The EPS submission is used when employers need to recover statutory payments (such as sick pay, maternity pay etc.) and are also used if there is a nil payment due for the month (as no FPS submission will be made).
The FPS submission will include a great deal of information about the employee including the range of hours they work. You can find out the full details included in an FPS on the GOV.UK website.
The normal requirement for RTI is that the FPS submission must be sent electronically to HMRC ‘on or before’ the payment is made to the employee. This requirement can be difficult for small employers or those who have casual staff.
HMRC have accepted that some employers may have difficulty and have therefore introduced a temporary relaxation to the ‘on or before’ requirement. This recognises that some employers who pay their staff weekly or fortnightly but who run payrolls monthly may need more time to adjust.
As such, HMRC have said that some employers with nine or fewer employees will be able to report PAYE information on or before the last payday in the tax month as opposed to each and every time the employee is paid. This may give employers more time to get their submission together. This relaxation will apply until April 2016.
Full guidance on this is on the GOV.UK website.
Care and support employers are able to submit PAYE information to HMRC using paper rather than online. They must to contact HMRC if they want, or need, to do this.
If an employer is "digitally excluded", that is that they are unable for whatever reason to access the internet and do things online they can to ask HMRC for permission to continue with paper filing. HMRC’s intention is that this option will only remain in place up to April 2017.
Certain religious groups, whose beliefs are incompatible with the use of electronic methods of communication may also be exempt from online filing requirements.
More information is available on the GOV.UK website.
HMRC will be sending the data that they receive from employers to DWP. This will enable DWP to use RTI data about a claimant’s employed earnings to adjust UC awards each month.
- A person has employed earnings in respect of which deductions or repayments of income tax are required to be made under the PAYE regulations (Pay as You Earn) AND
- The person required to make those deductions or repayments is a Real Time Information employer
The UC regulations make it clear that, where these two requirements are met, the amount reported by the employer to HMRC via the RTI system is the amount that the UC claimant is to be treated as receiving in that assessment period.
The Regulations do make some provisions for reporting income other than by RTI. Where an employer is not required to report through RTI or fails to report the earnings to HMRC (note this is a total failure to report rather than incorrectly reporting) then DWP will ask the claimant to self-report their figures. This will be done through a self-reporting earnings tool online. The claimant may also be asked to produce verification of those earnings (for example by providing a payslip).
Once earnings have been self-reported, they should not be taken into account again if the employer then reports those earnings through RTI.
Unfortunately the UC Regulations have not made proper provision for situations where RTI data may be incorrect or late. This can result in some adverse consequences for UC claimants.
Incorrect RTI data
If the figures sent in the FPS submission to HMRC by the claimant’s employer are wrong, the figure for employed earnings used by DWP for UC will also be wrong. However the wording of the Regulation means that the figure given to HMRC, regardless of whether it is correct, must be used for UC purposes.
In theory, if the employer corrects the problem the following month, the claimant’s UC should be corrected. However these spikes and falls in UC may be difficult for the claimant to understand as there will be no further information from DWP or HMRC. It will also not help claimants where the mistake is corrected much later. It also means that a claimant may lose out on a work allowance in one month if no earnings are recorded and they receive two sets of earnings in another assessment period.
Late FPS submissions
Where the FPS submission is sent by the employer to HMRC late, the Regulations once again state that the claimant must be treated as having earned income for the assessment period in which the RTI submission is received. This means that a situation is possible where the claimant receives payment in one assessment period and the submission is sent in the next period. In this case, for the UC purposes the claimant is treated as receiving the income in the later assessment period even though earlier in the same Regulations it states that income is actual income received in that period.
As a consequence, claimants who receive roughly the same amount of pay each month may see large spikes and falls in their UC entitlement from one assessment period to the next depending on when their employer submits their FPS to HMRC.
Updated 7 March 2016