What is RTI in payroll?

What is RTI?

Real Time Information (‘RTI’) is a system that was introduced by HM Revenue and Customs (‘HMRC’) in the UK and rolled out across businesses from April 2013.  It was introduced to improve the operation of Pay as You Earn (‘PAYE’), streamline payroll year end processing and improve the way that employers submit payroll information about their employees. 

Known by some as 'RTI payroll,' the rollout of RTI was gradual, with employers required to start reporting payroll information to HMRC in real time from the start of the 2013-2014 tax year. The implementation of RTI payroll across businesses in the UK started with large employers in 2013 and was phased in across businesses of all sizes across several years.  

Employers were given a year to adjust to the new system, with late reporting penalties initially suspended to allow employers to adapt to the changes. From October 2014, penalties were introduced for late submissions or inaccuracies in payroll information. 

RTI requires employers to report their employees' earnings and deductions to HMRC in real time, every time they make a payment. They can do this through an HMRC recognised payroll solution. There are some mandatory submissions and payroll reports that an employer must make to HMRC, including FPS and EPS submissions.  

• Full Payment Submission (‘FPS’): An FPS is information that’s sent to HMRC on or before payday. It tells HMRC about payments to employees and what deductions have been made to their pay. It must be sent each time an employer runs payroll and must contain very specific information.
• Electronic Payment Submission (‘EPS’): An EPS is a submission that reports values to HMRC that are not included on the FPS. The values included in the EPS may subsequently affect the payments that the employer makes to HMRC.

The introduction of RTI was a significant change to the way payroll is processed. Prior to the introduction of RTI, employers were only required to report their payroll information annually.

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What are the benefits of RTI in UK payroll?

By submitting payroll information in real time, it allows HMRC to identify errors or discrepancies immediately, rather than waiting until the end of the tax year. This ensures that employees’ tax and National Insurance contributions (‘NICs’) are more accurately calculated and deducted, reducing the risk of underpayments or overpayments due to incorrect tax codes or NI letters being applied.

One of the key features of RTI is that it simplifies the process of reporting payroll information to HMRC. Employers can use outsourced payroll software to report their payroll information, which is then submitted to HMRC automatically. This eliminates the need for manual submissions, which can be time-consuming and prone to errors.  Some of the benefits of RTI are:

• Allows earlier detection of errors: RTI ensures that payroll information is accurate by requiring employers to report payroll information to HMRC in real time. This reduces the risk of errors and ensures that employees' tax and National Insurance contributions are calculated correctly. It also allows HMRC to identify any errors during the payroll year – enabling earlier correction – rather than waiting for year end.
• Saves time and money: RTI is more efficient and simplifies the process of reporting payroll information by allowing employers to use payroll software to submit the information automatically.
• Improved transparency for employees: RTI provides employees with up-to-date information about their tax and National Insurance contributions. Employers are required to provide their employees with a payslip each time they are paid, which includes information about their earnings, deductions and contributions. Many payroll software providers also have mobile payroll apps with interactive payslips. With RTI, changes are made by HMRC based on current, accurate data which helps employees keep track of their finances and ensures that they are aware of any changes to their tax or National Insurance circumstances.
• Helps employers avoid financial penalties: RTI ensures that employers are compliant with their legal obligations to report payroll information to HMRC. Employers who fail to comply with RTI can face financial penalties.
• Improved benefits payments: RTI ensures that benefit payments such as Working Tax Credits or Universal Credit are more accurate, as they are based on up-to-date payroll information.
• Cost savings for businesses: RTI reduces the administrative burden associated with payroll year end processing, which can result in cost savings for businesses. It also reduces the risk of errors, which can lead to financial penalties and other costs.

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The introduction of RTI payroll has had a positive impact on the accuracy of tax and benefit payments. By providing HMRC with up-to-date information about earnings and deductions, the system ensures that employees receive the correct amount of tax credits and benefits. This has been particularly beneficial for employees who receive benefits such as Working Tax Credits or Universal Credit, as their entitlements are based on their income.

Payroll RTI has been a positive change for the UK payroll system, making it more efficient and transparent for employers and employees alike.

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