What Are The Pros and Cons of RTI in Payroll​?

Real-Time Information (RTI) is an essential aspect of the payroll system in the UK. Introduced by HMRC, RTI mandates the employers to submit payroll data to HMRC every time payments are made to employees instead of reporting them once a year. The RTI enhances payroll accuracy, ensures compliance, and streamlines tax reporting. Nevertheless, like any system, there are pros and cons associated with RTI, particularly for businesses managing payroll operations.

Thus, this guide covers the advantages and disadvantages of RTI in payroll to give employers an insight into how it affects their businesses, employees, and HMRC compliance for the current tax year.

 

 

Understanding the Pros and Cons of RTI in Payroll​

The following are the pros and cons of RTI in payroll for the employees, and employees to make informed choices and ensure compliance with HMRC regulations:

Advantages of RTI in Payroll:

Following are the advantages of Real Time Information (RTI) are:

Improved Accuracy in tax reporting:

The paramount reason owing to which businesses are switching to real-time payroll is that it improves payroll efficiency and accuracy. With the automated nature of the RTI system in payroll, the risk of errors is reduced significantly. Consequently, the likelihood of fines and penalties also drops. Further elaborating, RTI payroll is an improved system of reporting that HMRC established to make PAYE submissions more efficient. With this system, an employer transmits the payroll data (income tax deductions and NICs made under the PAYE system) to HMRC each time an employee is paid, reducing errors in tax calculations. Similarly, RTI eliminates year-end tax reconciliation issues since the information is now updated in real-time. Lastly, it also ensures accurate calculation of income tax and NICs.

Simplified Payroll Administration:

Fortunately, RTI considerably reduces the burden of reporting the payroll annually because it spreads the submissions throughout the year instead. Likewise, the previously ever-present risk of manual errors lowers since payroll software is now integrated with HMRC systems. There are also automatic updates which ensure compliance with new tax codes and deductions.

Less Chance of Payroll Fraud:

One of the most crucial considerations when learning the pros and cons of RTI in payroll is the faster detection of payroll fraud. With RTI payroll, HMRC can monitor payroll submissions in real-time, which enables it to promptly identify or detect any fraudulent claims or discrepancies. Therefore, employees are less likely to be underpaid because of incorrect tax codes or false employment claims.

Transparency for Employees:

It comes under the scope of the responsibilities of employers to give their employees complete transparency by enabling them real-time visibility of the deductions being made from their wages. Previously, individuals could only check their payslips at the end of the pay cycle. However,  now, with a real-time payroll system, employees can seamlessly keep a precise track of how much money they are making as they earn it so they can effectively do financial planning.

Let’s grasp it with an example. Consider an employee who works overtime, their overtime hours can be recorded into the system,  and the amount owed for that day is automatically calculated and shown on a dashboard. Moving further, with real-time information, employees can have an adequate understanding of their active payslips, including overtime, costs, tax, and salary sacrifice. In brief, with all the current information, employees can make informed financial decisions.

Efficient Benefits Processing:

RTI integrates with Universal Credit, ensuring that the employees claiming entitlements receive benefits based on real-time earnings. In addition, it reduces delays in tax credit adjustments, which allows employees to receive their correct benefits quickly.

Compliance with HMRC Regulations:

Since, with the RTI system, employers fulfil tax obligations on time, they do not attract any penalties from HMRC for late or incorrect submissions. Likewise, HMRC can easily track unpaid taxes and encourage timely payments. Ultimately, the RTI system ensures up-to-snuff compliance with HMRC tax regulations by reducing the risk of tax evasion and ensuring transparency in employment payments.

Efficient Payroll Processing for Organisations:

Apart from all the aforementioned advantages of RTI for employees and ensuring compliance, RTI greatly benefits the businesses transitioning to real-time payroll as well, the fundamental of which is speed. It is usually observed that companies typically waste up to 75 hours per pay cycle, which signifies how productivity was meagre before the RTI. Nonetheless, now, with the RTI, expedient payroll processing comes in handy. Further elaborating, now tracking people costs in real-time is a no-brainer, as organisations can transition from reactive to proactive planning. On account of this agility or quickness, businesses can make shrewd and strategic decisions, bolstering productivity.

Also , you can learn more about RTI and payroll by reading our following guides respectively:

• What is RTI in payroll?
• What is payroll?

Disadvantages of RTI in Payroll:

Following the disadvantages of Real Time Information (RTI) are:

Increased Administrative Burden for Small Businesses:

Among the pros and cons of RTI in payroll, one significant downside is that small businesses with limited payroll experience may struggle with managing frequent RTI submissions. It means the small companies will have to bear the brunt of the additional workload, a shift from their previous reliance on annual payroll reporting. To combat this increased workload, the companies will deem the purchase of dedicated, HMRC-compliant payroll software. Subsequently, owners may face higher operational costs to ensure compliance and streamline their payroll processes.

Risk of Penalties Due to Late or Incorrect Submissions:

Another considerable disadvantage of RTI is that there will be a perpetual risk of the imposition of fines and penalties from HMRC if businesses submit payroll reports after the due date. Notably, a payroll report must be submitted on or before payday to avoid fines.

As per HMRC directives, you will attract a penalty if:

• Your Full Payment Submission (FPS) was late
• You failed to send the following: 

1. • The required number of FPSs.
   • An Employer Payment Summary (EPS) (when you did not pay any employees in a tax month).

More specifically, late filing penalties range from £100 to £400 per late submission, based on business size. Beyond that, mistakes in payroll submissions can lead to non-compliance issues and the resulting rectification costs. It is advised to stay abreast of the late filing penalties. Therefore, visit the government website to learn more on what penalties you can face if you do not submit the payroll reports on time:

Need of Reliable Payroll Software and Internet Access:

With RTI in place now, employers need compatible and HMRC-recognised payroll software to integrate with HMRC’s RTI system, such as Sage, Xero, and BrightPay. Accordingly, poor or unsteady internet connectivity or software issues can lead to missed deadlines and the resultant penalties. Aside from that, the payroll software requires ongoing updates and maintenance that augments the business expenses.

Complexity in Managing Corrections and Adjustments:

If any errors or inaccuracies surface in RTI submissions, employers are required to make immediate corrections via the Full Payment Submission (FPS) or Employer Payment Summary (EPS). Hence, teams managing payroll need continuous training to properly deal with RTI-related corrections. Similarly, making adjustments for underpaid or overpaid tax has also become more complicated and challenging due to RTI reporting.

Challenges for Employers with Temporary Workers:

It is compulsory for employers with fluctuating payrolls, such as those associated with hospitality or agriculture, to manage RTI submissions more frequently. Likewise, casual employees, who are only hired to render their services temporarily or for a season, may create additional administrative burdens in payroll processing. As an outcome, businesses need to track irregular working patterns so they can make correct tax and NIC deductions.

Increased Compliance Costs:

Now that businesses must invest in RTI-compliant payroll software, their operational costs are bound to increase. Moreover, hiring payroll accountants to manage RTI compliance leads to extra expenses. Above all, regular updates to payroll software may require additional training and support costs. However, if you appoint an accountant from payrollservices.accountants, affordability is guaranteed since we pledge to simplify your payroll operations with our wallet-friendly and expert payroll outsourcing.

 

 

Conclusion:

In the end, Real-Time Information (RTI) in payroll has undoubtedly brought about a revolution in tax reporting in the UK, improving tax accuracy, compliance, and early fraud detection. However, it is rational that businesses weigh the pros and cons of RTI in payroll to reap the benefits ( such as streamlined payroll administration and better cash flow management) while also grappling with the challenges it presents, particularly for small businesses and those with irregular payrolls. Nevertheless, you can significantly minimise risks by letting a professional payroll accountant deal with payroll obligations for you in an effective and efficient manner. Thus, find a cost-effective and proficient payroll service provider with payrollservices.accountants.

Disclaimer: Please note that the information provided in this blog is exclusively for informational purposes and should not be considered financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.