More real time tax system details revealed

Employers will have to make changes in their payroll software to meet demands from HM Revenue and Customs' (HMRC) for real time information relating to tax payments, according to the government minister overseeing the programme.

Real Time Information (RTI) will require employers to provide details on tax and other deductions from employees when or before payments are made, rather than annually. It will play an important role in providing data to the Department for Work and Pensions to support the provision of universal credits from 2013.

Speaking at an All Party Parliamentary Group on Taxation's (APPG) event to mark the beginning of its work on a report on RTI, David Gauke, the exchequer secretary to the Treasury, said the system would reduce the costs of operating PAYE, and that careful implementation should reduce the costs of software upgrades. He added that the government is looking at ways of helping small businesses to make the changes.

But Gauke downplayed the cost implications for making sure employers' payroll systems would be able to cope with the new requirements: "Businesses are going to have to update software to comply with RTI, but the overall impact for employers will be to reduce costs."

HMRC also says RTI will present other benefits including a reduction in fraud and errors, increased transparency of the tax system to individuals, better support for the administration of pensions and improvements  in the quality of national statistics.

The first pilots for RTI are due to begin in April 2012 and it should be ready for full implementation by October 2013.