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HMRC's Real Time Information (RTI) pilot launched

A pilot project marking a significant change in the way that PAYE payments are calculated has been launched by HMRC, with the first volunteer employers testing the new Real Time Information (RTI) system.

Under RTI, employers and pension providers will inform HMRC about any PAYE payments, such as tax and NICs, each month as opposed to at the end of each tax year. 10 volunteer employers have now submitted their RTI returns, which HMRC hopes will make the PAYE process easier, more accurate and reduce HMRC administration and costs.

The majority of employers will join RTI from April 2013, with all employers switching to the service by October 2013. By this date, the RTI system will also support the operation of the Government's flagship Universal Credit welfare programme, which will calculate welfare claims and tax credits automatically based on real time earnings.

According to David Gauke, exchequer secretary, the new system will remove £300 million worth of administrative burdens from employers, mainly from the abolition of the end-of-year PAYE return process.

"RTI will ensure that the PAYE system meets the needs of the 21st century. It will improve the service to taxpayers by making it easier to ensure that people pay the right tax after a change of job," he said.

"HMRC is committed to a smooth and on-time transition. The start of the pilot today demonstrates that RTI is on track."

HMRC was heavily criticised in 2010 after millions of people were sent tax demands due to incorrect calculations obtained from its PAYE system. It has confirmed that it is one of the 10 test employers to use the new system allowing a first-hand experience on how it is working from an employer's perspective.

A further 310 volunteer employers and pension providers are set to join the pilot during May and June, with hopes of around 1,300 volunteers joining by September.