Real Time Information & BACS
HMRC's introduction of reporting PAYE in real time puts BACS firmly at the centre of RTI. This is because RTI is all about aligning payroll with payments to employees.
BACS is the only UK payment method that supports RTI reporting, directly linking employers’ salary payments with their RTI return to HMRC.
Simply by referring to their BACS payment files an employer can confirm they're reporting RTI. And, while BACS is part of Real Time Information compliance, the BACS network is independent of HMRC and a neutral reporting channel. Employers, their accountants and other payroll providers using BACS can access their BACS payment files directly to demonstrate their compliance with RTI.
How does this work?
Employers using direct BACS or RTI BACS to pay their employees are required by law to include a unique hash code in their BACS payment instructions every time payroll is run and the RTI internet return, or Full Payment Submission, is produced for submission to HMRC via the Government Gateway. This is all done automatically by payroll software.
Hash codes are randomly generated and inserted by payroll software into both the FPS internet return and BACS payment file when payroll is run. The hash codes in the FPS return and the BACS file are identical.
Because paying employees is the final step when running payroll, RTI reporting has to be run first before the BACS payment file is generated. This is what HMRC’s ‘on or before’ rule means: reporting on or before employees are paid.
Where a hash code is present in an employer’s BACS payment file it confirms RTI has been run. (If payroll software cannot submit the FPS to HMRC the BACS file will still contain the hash code.)
Why have HMRC designed RTI reporting this way?
BACS is a part of RTI because HMRC want employer payroll reporting and payments to employees to be completely synchronised.
However direct BACS is the only UK payment method that supports HMRC's requirement to align payroll with payments because of the way direct BACS payment instructions link directly to the employer, not their bank.
Payroll software will not insert a hash code into a payment file using any other payment method: RTI hash coding is only available for direct BACS users.
Don’t I use BACS already?
Direct BACS, or RTI BACS, means the use of a BACS Service User Number or “SUN” sponsored by the employer’s bank, to instruct payments directly to the BACS network.
This is how direct BACS differs from internet banking salary payments which do not require a SUN. The SUN is a unique reference that identifies the business it belongs to and – because of the way payroll software generates the direct BACS payment file – if RTI has been run.
Do I have to use Direct BACS?
While using direct BACS to pay employees is not compulsory, using the RTI BACS hash code if you do, is!
This means employers using direct BACS will have hash codes in their payment file, inserted automatically by their payroll software.
In any event, direct BACS validates employers' use of RTI payroll software to comply with HMRC's new rules for employers to operate PAYE in real time.