01 November 2021
The CIPP’s policy and research team explores the impact that real time information (RTI) has on Universal Credit (UC) claims, and why reporting dates have such an important part to play
Introduction of RTI
In 2013, the government made two monumental changes that continue to impact payroll professionals today. The introduction of RTI was the biggest shakeup to payroll in the 21st century. The annual P35 and P14 end of year returns took their final bow, and employers began to report pay as you earn (PAYE) data in real time. The full payment submission (FPS) and employer payment summary (EPS) are now ‘business as usual’ in payroll teams across the UK.
The information provided in these files has allowed government to introduce new initiatives, such as the personal tax account and dynamic coding. One of the most well-known, but perhaps misunderstood links with RTI is the UC system which was the second monumental change introduced in 2013.
Introduction of UC
UC was introduced in 2013, the same year as RTI and created major reform to the UK benefits and tax credit systems. The government’s intention was to improve work incentives and provide a smoother transition in and out of work, alongside making a simplified system to administer and claim. The new UC system also looked to reduce fraud and error in benefit claims. Whether the government achieved its aims in the introduction of UC is beyond the scope of this article, however, the interaction between RTI and UC is a key point for any payroll professional to understand.
The impact of RTI on UC
In June 2021, eight years after RTI and UC were launched, an Employer Bulletin from Her Majesty’s Revenue and Customs (HMRC) continued to warn employers about the importance of reporting payroll information accurately and on time. The reason for this reminder was to highlight the negative impact that late or incorrect data can have on UC claims. This message has been consistently shared by HMRC for several years, but unfortunately the UC system, and those requiring support from it, continues to be impacted by submission errors.
UC claims – the basics
UC claims are based on an assessment period. The assessment period usually starts on the date the claimant applies for UC and ends one calendar month later. This means the start date of an assessment period can vary any time from the first of the month, to the last day of the month.
To calculate the amount of UC due to the claimant, the Department for Work and Pensions (DWP) receive RTI files daily from HMRC. HMRC sends these files four times per day, with the final file being sent at 9pm. The DWP then uses the information on the files to establish the employed earnings figure. This figure forms the basis of the calculation for the UC claim in that assessment period and is paid to the claimant on a monthly basis.
Payments in the wrong assessment period
Where an FPS is submitted late, or in the wrong assessment period, this could mean that the employed earnings figure in the assessment period is incorrect, resulting in an error in universal credits received.
example one: an employee’s normal pay day is on the 25th of the month, and their assessment period runs from 28th of one month, to the 27th of the following month. The employer pays the employee on time but submits a late FPS on the 29th of the month. The information would be sent to the DWP after the assessment period has ended, possibly resulting in the DWP treating the earnings in that period as nil.
example two: an employee’s assessment period is from 24th of the month to the 23rd of the month. Their usual pay day falls on the 25th of the month, but pay day was brought forward to the 23rd because the usual pay date fell on a non-banking day. A payment on the 25th in the previous month, followed by a payment on the 23rd would mean they have two pay days in one assessment period. These additional earnings could mean that an individual is not paid the UC they are entitled to because the employed earnings are over-inflated by the early pay date.
Rectifying errors
In November 2020, the DWP’s powers were extended, allowing the DWP to reallocate an RTI payment from one assessment period to another, helping to prevent the negative impact from the above examples.
In example one, where the employer is late in submitting the RTI file, the DWP has the power to reallocate the payment to the correct assessment period. To support the correct allocation of earnings in the correct assessment period, HMRC requires that the payment date submitted on the FPS file contains the regular payment date.
In example two, the DWP can use the regular payment date to automatically reallocate the payment to the correct assessment period. This was announced as a further improvement to the UC system in August 2021. Again, it is essential that the payment date on the RTI file is the regular pay day, and not the date that the earnings were actually received.
Claimants can request that the DWP reallocate payment, but this is not guaranteed and can create an administrative and financial burden for individuals who are already identified as having a low income.The CIPP encourages payroll teams to check with their software providers to ensure their RTI submissions reflect the regular pay date to enable a smooth relationship between RTI and UC.
Featured in the November 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.