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For companies with employees in the United Kingdom, a number of recent and ongoing regulatory changes have made payroll in the country more complicated. As these new standards continue to take effect, employers must ensure they adapt their payroll processes accordingly. And as these changes go into effect gradually, based on company size, it is crucial that organizations understand what is required of them and when. Whether based in the U.K., or a multi-national organization with employees in the country, it is essential to understand these new rules and how companies can meet compliance with these regulations.
One of the biggest changes to payroll in the U.K. is the introduction of the Real Time Information (RTI) system. This system requires that all payroll information, from payments and income taxes to social contributions, be reported to HM Revenue & Customs (HMRC) on a pay-as-you-earn (PAYE) basis in real time whenever an employee is compensated. As with any change, the introduction of the RTI system has caused significant confusion for employers, requiring a firm understanding of its impact.
Through the U.K.’s RTI system, made mandatory for the 2013-2014 tax year, the payroll system must feed appropriate earnings data to HMRC. HMRC then consolidates this payroll data for employees in the pay period, thereby establishing total payments due for tax, social contributions and employee payments. As a result, the Department of Work and Pensions can then assess Universal Credit claims with timely and accurate earnings information.
The system has numerous benefits for employers. Since organizations are required to report their payroll data on a regular basis, they don’t have to submit a year’s worth of information at the end of the tax year – typically a significant burden. They also benefit from clear, standardized processes for their payroll processes, helping them to keep up-to-date records. Moreover, as this mandate requires that companies adopt appropriate payroll software to handle their payroll transactions, more companies will benefit from moving away from outdated paper-based payroll processes.
Still, employers may face a number of obstacles in complying with the system, such as the penalties for late submissions. As employers are now required to submit their payroll information on a regular basis, rather than once a year, they need to ensure they provide the necessary information on time, every time. The penalties for late submissions are progressive and based on the number of defaults, ranging from one percent of the total amount that is late (for one to three late submissions), up to four percent for 10 or more late payments.
With this change, it is crucial that multinational organizations with employees in the U.K. fully understand what they need to do to comply with this mandate. But RTI isn’t the only recent legislative change in the country. Stay tuned for our next post to learn about another major change: the introduction of Auto-Enrollment for pension plans.
