Small Talk: Heard of RTI? It might do you a lot of good…

Real-time information may require some investment but it will improve efficiency

All good things come to those who wait: while the introduction of real-time information (RTI) seems inevitably destined to prompt one of those IT meltdowns for which our public sector is so renowned, there are plenty of reasons why businesses should welcome the overhaul.

That's especially true for small businesses – and not only because HM Revenue & Customs (HMRC) has told employers with fewer than 50 staff that they do not need to fully comply with the new system until October. It offered that concession at the 11th hour last month after finally accepting the repeated warnings of small business groups who told HMRC their members had never heard of the new system, let alone got themselves ready for it.

RTI, for the uninitiated, is the reform of the pay-as-you-earn (PAYE) system that came into effect on Saturday, the first day of the 2013-14 financial year. It requires employers to report every single payment made to all staff at the moment it is made, rather than providing such data through a single end-of-tax-year PAYE return.

Why would small businesses welcome such a reform, which sounds like a shift to a more onerous reporting system? In short, because RTI, once up-and-running properly, should actually be much less onerous.

For one thing, the system will only work if employers' payroll systems are entirely electronic and make automatic online returns to HMRC each time that payments are made. That may require an investment in new technology for some businesses, but over time it should dramatically improve efficiency.

Moreover, the annual PAYE return process can be incredibly bureaucratic – HMRC's estimate is that it costs businesses £300m a year simply to administer. Worse, the final return often prompts an unexpected demand from HMRC for a reconciliation payment – and where employers have been getting deductions wrong for the whole of the previous year, these demands can be uncomfortably large.

It might also be possible for small businesses to use the introduction of RTI as an opportunity to simplify their payroll arrangements. The more frequently staff are paid, the more complicated real-time reporting becomes. A shift to, say, fortnightly or monthly payments, rather than weekly payroll runs, will reduce costs and eliminate mistakes (though employees will generally need to agree to the change).

To capture these benefits, employers need to ensure that their payroll systems can cope with RTI. For those using payroll software already, that means checking with the supplier and updating where necessary (or buying the software, for those still using paper-based administration systems). Importantly, employers also need to be absolutely sure that they have accurate and up-to-date data on all their staff – everything from date-of-birth details to national insurance numbers – but this should also improve other human resources administration.

The decision of HMRC to exempt the smallest businesses from RTI until October was the right one, and will have the happy side-effect of ensuring that they're not directly caught up if there is a catastrophic IT failure as the system goes live. The authority has also made it clear that there will be no penalties for late filing of PAYE returns under RTI until next April at the earliest, which gives all businesses a chance to get used to the new regime without being penalised for mistakes.

There are undoubtedly some complexities to be tackled in the transition to RTI, but it is not as if the current system is without confusion. Electronic reporting through RTI will get rid of the potential need for employers to file at least eight different HMRC forms, for example.

Will all small businesses now be ready to comply by October? Probably not, though ironically a systems failure at HMRC would do more to publicise the move to RTI than all of the Government's worthy attempts to keep businesses informed combined. But the delay should mean fewer small employers are caught out. And, over time, even those for whom RTI represents an unexpected shock stand to benefit.

We should, in other words, look forward to RTI (or at least to a time when it is successfully bedded down). Reforms like these invariably come with teething problems, but the hassle will be worth it in the end.

Green power company gets £100m injection

Alternative Investment Market-listed Greenko will today hold an EGM to formally approve a £100m investment in the company from the sovereign wealth fund Singapore Investment Corporation, a renowned infrastructure investor. SIC joins investors such as Standard Chartered and GE in Greenko, which produces power from wind, hydro and other clean energy projects in India. The company has also recruited Keith Henry, former boss of National Power, as its chairman. Greenko plans to use SIC’s money to raise production capacity at its hydro power facilities in northern India as it moves towards its target of being able to produce at least 1 gigawatt of power from all its facilities by 2015. Arden, its broker, points out that “execution is key” as Greenko rolls out its plans, particularly as delays on projects have disappointed investors in the past. Nevertheless, it is raising its price target for the stock, currently trading at 135p, from 227p to 266p.