The deadline for employers to update their software and be compliant with the U.K.’s Real Time Information (RTI) system has been extended to April 6, 2015 (from April 6, 2014). The introduction of RTI revealed that certain payroll software did not correctly report credits for foreign tax.
The U.K. tax authority has extended the deadline for employers to update their software and be compliant with the Real Time Information system.
When an employee is subject to withholding taxes (“PAYE”) on earnings in the U.K. but is also subject to mandatory withholding in another country, relief for the foreign tax can be claimed against the U.K. tax withheld under PAYE. Unfortunately, the introduction of Real Time Information (“RTI”) highlighted that certain payroll software did not correctly report the credit for foreign tax. The U.K. tax authority, Her Majesty’s Revenue and Customs (HMRC), had informed employers that their software had to be compliant by 6 April 2014. This deadline has been extended to 6 April 20151.
HMRC has now extended the deadline to 6 April 2015, because certain software providers have not been able to meet the 6 April 2014 deadline, but should have sufficient time to amend their software by 6 April 2015.
This extension should enable more employers to be compliant without having to change software provider or alternatively stop claiming credit for foreign taxes under the “Appendix 5 agreement.”
Credit for U.K. taxes is achieved by entering into an agreement with HMRC – the agreement is formally known as the “Net of Foreign Tax Credit Relief Scheme,” but is commonly referred to as an “Appendix 5 agreement.” HMRC had written to employers where their software or the software being used by their agents did not correctly report under RTI. Such affected employers had been informed that they needed to have compliant software by 6 April 2014. This might have required the employer changing software provider.
Employers should check whether their software provider or payroll agent will be compliant by the new deadline. If their software provider or payroll agent does not intend to be compliant in respect of Appendix 5 agreements the employer will need to decide whether to stop using the agreement or change provider/agent.
The introduction of RTI was a radical change to the reporting of payments made to and in respect of employees. (For prior coverage, see Flash International Executive Alert 2013-136, 3 October 2013.) HMRC’s pragmatic approach to the issues faced by employers (and software providers) in light of the changes is very welcome.
1 25 March 2014 e-mail communication to KPMG LLP (U.K.) from HMRC.
The information contained in this newsletter was submitted by the KPMG International member firm in the United Kingdom.
© 2016 KPMG LLP, a United Kingdom legal liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.