HMRC’s introduction of Real Time Information (RTI) into the PAYE system looks set to have a negative impact on businesses across the UK, with SMEs particularly badly hit. Presented by HMRC as a simplification of the PAYE system, RTI will in fact generate a significant administrative burden for employers.

The overhaul will require employers to submit employee information on a ‘real time’ basis – each time an individual is paid – as opposed to at the end of the financial year. So an employer could find themselves having to file up to 52 separate reports, if an employee was paid weekly. HMRC claim that RTI reporting will be synchronised as closely as possible with the operation of payroll. However, a recent HMRC consultation document contains repeated references to the need to make allowances for a ‘learning curve’ for employers – evidence, if evidence were needed, that the implementation of RTI is expected to be a headache.

The frequency with which employers must file the information could prove hugely time-consuming and disruptive to business. RTI may help to streamline HMRC’s systems, but is likely wreak havoc for SMEs.

A pilot scheme is underway to trial RTI. With 310 employers now involved, HMRC report they are ‘on track’ to roll out the system across the UK by April 2013. This is despite the resignation of three key players in the delivery of the RTI system, leaving the project arguably rudderless. What is less clear is whether due consideration has been given to the upheaval the shift to RTI will cause smaller businesses.

I spoke to Enrico Liverani at DCS Payroll, one of the first employers to become involved in the pilot. I was interested to discover his opinion of the RTI system after three months of the trial. He explained that the pressures of filing RTI to HMRC would be compounded for the 65% of businesses who do not use the BACS system. An employer who paid their staff in cash or used an online banking system could be forced away from such free options to a cost-based solution such as BACS because of HMRC’s requirement to see verification of payments made to each employee. Whether this is a strategy to force businesses into using the BACS system remains to be seen. We have all had experience of what HMRC think of cash transactions!

Employers should also be aware that the new system is being driven by an agenda imposed by the Department for Work and Pensions (DWP).

The DWP will use the information harvested through RTI to introduce a Universal Credit System to replace the current benefits structure. The pilot has already channelled 100,000 employee records straight to the DWP to accommodate an unrealistically tight timescale.

I cannot be alone in finding it unfair that employers should be made to work harder to provide information which is essentially making the work of the DWP easier. If information is required for a new initiative, the onus should be on the government and not the employer to do the groundwork.