RTI adds extra burden to fragile cash-flows

13th February 2013

With just two months to go before the implementation of Real Time Information (RTI) by HMRC, employers should be reminded that they need to update their payroll systems to ensure that they will comply with these new regulations.

RTI is a radical change to the way the PAYE scheme is operated and in summary is the submission of a report to HMRC of deductions made from employees' wages at the point of deduction.  This change will give HMRC real time (hence the name of the scheme) and up to date information on each and every employer's PAYE & NI obligations. This in effect involves the production of a mini P35 on a weekly or monthly basis depending on how often employees are paid, rather than just at the end of the financial year. Many of the companies and businesses that we advise have fallen into arrears with their PAYE & NI payments and these arrears will have accumulated over a significant period of time. Under the current system, HMRC will not know the extent of any arrears until the submission of a P35 at the year end. Under the new system they will be aware of any arrears, and in particular increasing arrears, on a weekly or monthly basis. The implementation of RTI and the introduction of a new penalty system could see HMRC taking a more proactive approach to the collection of overdue PAYE & NI payments. This could have the effect of further pressure being placed onto a company's already fragile cash flow. Time will tell if this leads to an increase in insolvencies due to HMRC issuing demands for payment and petitioning for the winding up of businesses for those none payers. Companies and business owners therefore need to ensure that they are compliant with the new requirements from HMRC and should the situation arise that they are unable to meet the liabilities as and when they fall due that they take the relevant advice from their accountants or an Insolvency Practitioner. Emma Legdon is a Licensed Insolvency Practitioner at Hart Shaw and can be contacted on T: 0114 251 8850 or email: emma.legdon@hartshaw.co.uk.