RTI penalty let off for some employers

Payroll

HMRC recently announced a limited relaxation of the key RTI rules. In effect it’s an exemption from the late reporting penalties which come into force in April. What’s the full story?

New year for RTI
The start of the second year of PAYE RTI is approaching and with it the threat of penalties for employers who send in their online reports late. The rules require employers to report details of salary etc. to HMRC online “on or before” the date it’s paid. This isn’t usually a problem but, for example, in the case of company directors it has proved problematic

When is pay day?
For PAYE, and therefore RTI purposes, the date of payment of a director’s salary, bonus, etc. is the earliest of:

  • when it’s actually paid to them
  • the date it’s credited to their director’s loan account, i.e. when they are entitled to draw it
  • when the company fixes the amount to be paid, e.g. when the board approves a bonus.

Example. Imagine a board meeting on a Friday evening and the directors approve a year-end bonus for themselves of £20,000 each; strictly this must be reported to HMRC by midnight the same day. That’s tricky enough, but what if the payroll is run by the company’s accountant or an agency. In practice there’s no chance the RTI report can be made on time. New penalty rules: The position up to 5 April is that while late RTI reports break the rules, the worst outcome is a slap on the wrist from HMRC. But after that date they can trigger penalties, which HMRC has said it will rigorously enforce.

Reprieve for small employers
The good news is that HMRC has had a change of heart. It has recently conceded to an amnesty from the “on or before” rule which will apply until 6 April 2016. The bad news is that it will only be given to employers with nine or fewer employees (including directors). This means a late RTI report sent by an employer qualifying for the amnesty in 2014/15 and 2015/16, for whatever reason, won’t trigger a penalty charge. Trap. The amnesty only applies to employers who are required to make RTI reports for the current tax year. New employers and those with ten or more employees who don’t comply with the on or before rule will face penalties from 6 April. Tip. There are other situations where the on or before rule doesn’t apply, so make sure you know what these are or, starting in April, you might end up paying a fine when you don’t need to. Listed below are a few common situations when an RTI report is allowed later than when an employee is paid.

  • you make a one-off salary payment to an employee because they started working for you after your payroll for the month has been run.
  • you pay an employee for casual work lasting less than a week
  • you pay an advance of salary. This counts as a loan for RTI purposes.