Prepare Now To Avoid RTI Penalties

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Late filing penalties for RTI are not on the agenda for now, but this year’s Finance Act 2013 will change that. When will penalties take effect and what steps can you implement to avoid them?

RTI penalty recap

In tax there are broadly two types of penalty: one for submitting returns late and another for making errors. Real Time Information (RTI) penalties follow this pattern. Originally, HMRC intended to apply both types of penalty from April 6 this year, but it had a change of heart, at least in part.

Late filing let-off

Late filing penalties won’t apply until next year. When they do come in, they will apply to Full Payment Submissions (FPS) due on or after April 6 2014, where these are late. An FPS is the employer’s report which gives HMRC details of employees’ pay, PAYE tax, etc. Subject to some exceptions (see The next step), these will count as late unless they are submitted “on or before” the date you pay your workers.

Trap. While late filing penalties have been deferred, penalties for inaccurate FPSs can apply. These can vary according to how much tax and NI is involved.

Tip. HMRC supplies us with good business advice in saying it will take a risk-based approach to identify employers who might be making inaccurate returns. In other words, if you already have black marks against your name you should take extra care to make sure your FPSs are submitted complete and correct.

Avoid standing out from the crowd

Although submitting an FPS late in the current tax year won’t trigger a penalty, it certainly won’t stand you in good stead for the future. HMRC makes no secret of the fact that it considers employers who make late reports more likely to make incorrect ones.

Late penalties – prepare for next April

Your FPSs must show the date you’ll pay your employees. If, next tax year, this is earlier than the date you submit an FPS it might result in a penalty. There will be an amnesty for the first late FPS, but after this penalties will apply on a scale rate (see below) up to a maximum of 5% of the tax and NI shown on the overdue report. The maximum rate will apply to FPSs late by more than three months.

What’s the scale?

The Finance Act will authorise HMRC to set the rate of penalties for late FPSs, subject to the 5% cap. These won’t be announced until later this year. We’ll keep you posted.

Leniency for new employers

As well as the amnesty mentioned above HMRC will have the power to let new employers off late filing penalties for an “initial” period. We expect this might be three months, but we’ll let you know for sure as soon as the regulations are published.

Tip. Paydays that fall on non-banking days might be a flag for HMRC to take a closer look at whether FPSs are being submitted at the right time. Reduce this risk by setting your payroll day for monthly staff to the last working day of the month.

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Posted in Tax Tips

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