Real Time Information (RTI)
Real Time Information (RTI) is a fundamental aspect of payroll in the United Kingdom. It refers to an electronic system introduced by HM Revenue and Customs (HMRC) requiring employers to submit information about employees’ salaries, tax, National Insurance, and deductions at the time payments are made. The goal is to provide more accurate and timely data for both the government and employees, ensuring tax records reflect up-to-date earnings and deductions. An interesting fact is that before RTI, payroll information was reported only annually, which often led to discrepancies and delays in updating tax records.
What is Real Time Information (RTI)?
Real Time Information (RTI) is a UK government initiative that obligates employers to report details of payments and deductions for each employee every time they make a payroll payment. For example, an employer must report each instance of salary payment, including tax withheld and National Insurance contributions, before payments are issued to staff. This approach allows HMRC to receive employee information almost instantly, reducing the likelihood of errors related to tax codes and benefit calculations. For instance, if an employee changes jobs or starts a second job, the system ensures all income is reported promptly, preventing common issues such as underpayment or overpayment of tax.
How Does Real Time Information (RTI) Work in Practice?
Employers process their payroll as usual, but under RTI, they must submit a Full Payment Submission (FPS) to HM Revenue and Customs before or on the day employees are paid. The FPS contains detailed records including employee names, national insurance numbers, gross pay, tax deducted, and other statutory deductions. If any adjustments or corrections are needed after payment, an Employer Payment Summary (EPS) may also be submitted. Payroll software is designed to generate this information and transmit it directly to HMRC. For example, suppose a business pays an employee £2,000 gross in a month, deducts £200 in tax, and £150 in National Insurance — these figures are reported through the FPS on payday. HMRC can then update the employee’s records in real time.
Example Calculation: Submitting an RTI Payroll Report
Imagine a company pays an employee a monthly gross salary of £3,000. The payroll system calculates tax (£400), employee’s National Insurance (£250), and deducts these from the gross. The net pay is £3,000 - £400 - £250 = £2,350. On the same day or before the payment, the employer submits the FPS including these details to HMRC: gross pay £3,000, tax £400, NI £250, net pay £2,350. If a separate payment such as statutory sick pay or maternity leave is made, these are also included. This ensures all pay transactions are transparent, traceable, and immediately accessible to HMRC for ongoing tax and benefit assessments.
Historical Background and Evolution of RTI
The RTI system was officially launched in 2013 as part of a wider move to modernise the UK’s tax infrastructure. Prior to RTI, employers sent annual forms like P35 and P14 summarising all payments and deductions at the end of the financial year. This often led to outdated information in tax records and increased risk of errors. RTI was introduced to help close gaps between payroll actions and government record-keeping, supporting more accurate tax code updates, Universal Credit entitlement assessments, and easier migration for employees changing jobs.
Pros and Cons of Real Time Information (RTI)
One significant advantage of RTI is the increase in accuracy; employee tax codes and benefits are maintained more consistently, reducing issues such as incorrect tax bills. RTI also allows government services like Universal Credit to use live data, leading to fairer and timelier eligibility assessments. However, the system imposes more administrative oversight on employers, who must ensure compliance with each payroll period. Delays or errors in submitting an FPS can result in penalties from HMRC. Additionally, small businesses may find the need for compatible payroll software and timely data submissions challenging without dedicated resources. Balancing these issues is key to successful integration of RTI.
Practical Considerations and Key Features of RTI
RTI operates alongside systems such as Pay as you earn (PAYE) and works for all employers regardless of size. The core feature of RTI is its demand for up-to-date reporting for every payroll run, rather than waiting for year-end reporting. This means businesses must have reliable payroll processes and software that can produce compliant reports. Additionally, the system helps HMRC tackle fraud and errors, and enables employees to have easy access to their tax and deduction records. Employers considering employing staff for the first time must be aware of RTI obligations from the outset, as well as the need to keep payroll data accurate and secure.
Common Uses of RTI and When It Applies
RTI is mandatory for all UK employers paying wages through payroll. It applies whenever there is a payroll event, including regular salary, overtime, bonuses, or statutory payments. Accurate RTI submission ensures that employees switching jobs or roles do not have overlapping or missing income records with HMRC. This process integrates closely with administering state benefits and facilitates employers’ ability to meet their obligations easily through payroll software. For professionals managing larger teams or complex pay structures, keeping track of RTI requirements is crucial to avoiding compliance issues.
Understanding Real Time Information (RTI) is essential for anyone involved in payroll or employing staff in the UK. For business owners looking to streamline their payroll processes or who may require support with compliance, exploring business funding solutions can provide additional capacity and resources enabling robust payroll and tax management.
