Categorized | matt's blog

RTi scheme – Myths and Legends.

As I pointed out a few weeks ago, the new RTi system for operating your salary is nearly upon us. As expected, this has led to a fair amount of confusion and misinformation being bandied around by contractors. I think the term Chinese Whispers is probably more accurate, so let me just lay down a few excerpts and facts from HMRC and also from the association of common sense.

Very briefly, the RTi system will be as follows. Wait for it …….. ready?

As from April 2013, you need to file payroll information with HMRC in real time. This means – and I cannot make this clear enough – you will be required to tell them about the pay your company gives to an employee, when you pay it. Not when it suits your company or your Accountant, but when your company pays it.

Why have HMRC moved over to this new system? Look at it from their point of view. There are millions of employers out there and once a year HMRC find out who they have been paying and how much. There are many occasions when this can go wrong and HMRC only find out up to one year after there has been a problem. It is no secret that PAYE is by far the most complicated and difficult tax in the entire UK tax system. So from now on, HMRC want to know the truth about your company payroll, at the point you pay it.

This week, I have received an unprecedented level of enquiries from consultants that are confused about the advice their Accountants are giving them. There appears to be a general idea that you can run your company payroll in March 2014, for just one month, and then everything will be okay?

No it won’t.

For a start, what if there is a non-Director on the payroll? There is a 99% chance they will end up paying more national insurance than if you had paid the salary monthly.

What about your dividends for the previous 11 months? You will be paying more in dividends to survive, than you need to. You would end up with a large salary by way of a lump sum, being paid to you next March 2014? This is fine if you are flush with cash, but pretty hopeless if you have a mortgage to pay.

More importantly, what about the spirit of the new rules?  Yes, technically you can pay yourself one salary per year and think it’s very clever. But you are avoiding the system put in place by HMRC, for a very specific reason. And that reason is so you don’t have to file a monthly return.  You are better off understanding why they introduced this system in the first place, than spending time avoiding it.

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