Real Time Information is the most significant change to the PAYE system since 1944. Annuity providers will be required to tell HMRC about taxable payments at the time they are made. This could mean daily submissions to HMRC for many insurers rather than the current practice of once a year tax reporting.
RTI supports the introduction of universal tax credits from October 2013. It changes the basis of PAYE reporting both in terms of the information required by HMRC and the reporting deadline.
Failure to comply may ultimately result in penalties as well as the reputational risk in terms of customers and with HMRC.
More detailed and accurate data
RTI sets out very specific data requirements, with over 100 individual items of information listed. You will need to determine how payments should be reported. A data cleanse exercise may be required which may mean communicating with customers. This could take significant time to organise. You will need to submit an Employer Alignment Submission (EAS) before joining RTI to match your payroll data to that held by HMRC.
Payments to annuitants will most likely result in daily reporting to HMRC. Other types of payments are likely to create challenges including payments associated with triviality, drawdown, payments on death, those to children and those not made via BACS.
Systems and processes:
Payroll systems, whether in house or outsourced will need to be reviewed and updated to ensure RTI readiness. Where there are numerous legacy systems in operation, implementing the required reporting interfaces to extract the necessary information from all of these systems may be logistically challenging.
Additionally, where information gaps exist (e.g. as payments have switched to other beneficiaries such as spouses), then additional information not currently held may be required. The liability for doing this ultimately lies with the annuity provider.
Processes will also need to support the provision of real time information to payroll where there is an immediate requirement for money, e.g. flexible drawdown.
With only a short time remaining:
- Discuss the position with HMRC as their focus to date has been on employees;
- Ensure that all key stakeholders understand your RTI obligations - all those responsible for supplying data (including third parties such as IFAs) should understand the importance of accurate and timely data.
- Develop any IT solutions required to extract data from legacy systems and validate its accuracy, with resources allocated to test prior to implementation;
- Identify data gaps and take action to rectify, for example by contacting annuitants. Conduct a data cleanse exercise to validate the accuracy of data and that systems for capturing and reporting data are proficient; and
- Review existing payment types and determine how these will be disclosed going forward.
For more information please call your usual KPMG contact or contact Steve Wade, Paul Bloomfield or Daniel Gallon.