Undeniably the UK has one of the most complex payroll systems in the world. However, over the next 18 months, we will see some of the most fundamental changes to the reporting regime behind PAYE since its inception in 1944. Real Time Information (RTI) is being introduced by HMRC to provide more accurate and up-to-date information on employees and pensioners, in a move that will shift the PAYE reporting requirement from annual to monthly updates.

Not only will this support the introduction of Universal Credits, it will serve to fundamentally improve the overall operation of PAYE. By increasing the regularity of reporting, it enables HMRC to respond more efficiently to errors that lead to the under- or over-payment of tax.

With such a shake-up to the industry however, it comes as no surprise that there are some question marks about what RTI will actually mean for employers, and what needs to be done in preparation for the new process. All businesses, regardless of size or sector, will be affected by the introduction of RTI and HMRC is encouraging employers to ensure their payroll data is accurate before the change is implemented. This involves exercising due diligence to ensure details such as DOB, National Insurance numbers & names held on the company database are correct.

At Sage we recently conducted a survey among our customers to find out whether employers were aware of RTI and discovered that 63% of companies were aware of the change, an improvement on only 26% that knew last year. Although there has been an evident shift in the right direction, there is still quite a way to go before Britain is ready for RTI. This move represents a significant change to firms’ reporting regime and, to adjust to it, businesses will need to take the time to work with their payroll provider to validate their data, in order to ensure a smooth transition. The advantages of RTI, such as efficiency, savings, improved accuracy and elimination of fraud, will far outweigh the initial work to make your data more accurate.

If you’re confused about what RTI means for you and how you can best prepare for it, our advice is to contact your payroll provider and ask how RTI will impact your business, and what to do to ensure the data you submit is correct. Sage is working closely with HMRC to support its customers through this transition into the RTI world, by being involved in the pilot scheme that begins in April 2012. We are encouraging all our customers to get ready for RTI early, and a significant number of our customers – from SMEs with no payroll department through to large employers – are participating in the pilots to ensure the transition runs even more smoothly.

The task of simplifying the PAYE system is unquestionably a vast one, and whilst most software providers and payroll bureaux are ready for the changes, as an employer, you must start reviewing your current HR and payroll processes so that you will have all of the information to make your FPS (Full Payment Submission) each month.