PAYE in Real-Time: EDI Works for Payroll and Pensions

How UK companies and pension providers report payroll and pensions is changing. Her Majesty’s Revenue and Customs (HMRC) will move from requiring the filing of returns on an annual basis to filing them before, or at the same time as wages are paid. From 6 April 2013 UK employers will have to report in Real Time Information, (RTI) as HMRC refers to it. If their company doesn’t yet have a solution corporate treasurers may be asking if their electronic data interchange (EDI) solution can work in addressing this issue.

For payroll, RTI means that UK employers – or their accountant, bookkeeper or payroll bureau – will have to:

  • Send details to HMRC every time they pay an employee, at the time they pay them.
  • Use payroll software to send this information electronically as part of their routine payroll process.

The move is probably overdue, given the considerable changes in employment patterns, and the UK government needs a more effective way to handle a fluid workforce where people change jobs frequently. Many people now have more than one source of employment as well.

As the old process disappears, with it go a number of government forms that payroll teams used to have to deal with including the iconic P45. From a single annual filing, organisations will provide 12 a year if they pay their employees monthly and 52 if people receive their wages weekly. HMRC expects the employer to provide an electronic file containing all relevant information in a correct manner.

New Regime

There is considerable confusion about exactly how the new regime will work, as when it was initially proposed the data transfer method of choice was via the bank automated payment process (BACS). If your company is like over half the UK organisations surveyed by KMPG, the answer is that you’re not sure whether your existing payroll systems can cope with the change.

Payroll reform is only half the story. There is also the 2012 Pension Reform Act to consider, which requires every organisation in the UK – starting with the largest – to provide a workplace pension scheme for its employees. Each organisation has to auto-enrol all its employees onto the scheme and even if employees subsequently choose to opt out, the employer still has to auto-enrol them first.

It’s important that both the payroll and pension reforms are considered together because the UK government requires that it has RTI on both, in order to properly administer its Universal Credit (UC) benefit scheme that comes into effect in October 2013.

Initially the idea was to remove EDI from the equation, but HMRC have perhaps realised how many companies are already using EDI, and they have now allowed this reliable method to continue. So if your company hasn’t yet implemented an RTI solution, and you are using EDI then you need look no further.

It will come as little surprise to learn that most large business-to-business (B2B) providers already have HMRC as part of their trading network. EDI has been an established method of data exchange with the UK government for several years. This should aid a smooth changeover.

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