RTI Submissions Explained: A Practical Guide to UK Payroll Compliance for Startups

What is Real Time Information (RTI) Payroll? A Founder's Guide

For a founder or operations manager at an early-stage UK startup, running payroll can feel like a high-stakes task. Beyond the critical importance of paying your team correctly, there is the constant pressure of HMRC compliance. Managing UK payroll reporting correctly is not just an administrative chore; it's a core component of disciplined financial management, especially when every pound of cash flow is vital for growth. This guide breaks down how to submit payroll RTI to HMRC, focusing on the practical steps and common pitfalls for startups from pre-seed to Series B, ensuring you stay compliant without derailing your focus on building the business.

At its core, Real Time Information (RTI) is HMRC's system for receiving payroll information as it happens, not months after the fact. According to HMRC, "Real Time Information (RTI) is the mandatory HMRC system for employers to report payroll tax information electronically." This shift to real-time data allows for more accurate tax collection and ensures the universal credit system has up-to-date income information. For your startup, this means every time you pay an employee, you must simultaneously inform HMRC of the details. This process is managed through specific electronic submissions generated by your payroll software, such as Xero Payroll or other platforms.

The report includes key details like an employee's gross pay, deducted income tax, and National Insurance contributions. Understanding this fundamental principle is the first step towards mastering HMRC payroll compliance.

The Full Payment Submission (FPS): Your Core Payroll Duty

What do you absolutely have to do every single time you run payroll? The answer is to send a Full Payment Submission (FPS). This is the most frequent and crucial report in the RTI system, forming the backbone of your real time information payroll reporting. The FPS is a comprehensive summary that details all employee payments and deductions for a specific pay period.

When and How to Submit a Full Payment Submission

The timing is non-negotiable. As stated by HMRC, "A Full Payment Submission (FPS) must be submitted to HMRC on or before an employee's payday." This is the golden rule of RTI. Missing this deadline has direct financial consequences. Most modern payroll systems make the submission process straightforward, integrating it into the final steps of a pay run. The typical workflow is:

1. Finalise Your Pay Run: After entering all hours, salaries, and any variable pay for the period, you will 'post' or 'finalise' the pay run in your software. This locks in the figures.
2. Review the Summary: Your software will generate a summary of the PAYE tax and National Insurance liabilities for the period. This is your chance for a final check.
3. Submit to HMRC: You will see a prompt or button, often labelled "File with HMRC" or "Submit RTI." Clicking this sends the generated FPS file directly to HMRC via a secure Government Gateway connection.
4. Check for Confirmation: The software should provide a confirmation or receipt that the submission was successfully received by HMRC. It is good practice to check for this to ensure the filing is complete.

The responsibility for timely submission rests with you, the employer, even though the software automates the file creation. The practical consequence tends to be that founders set rigid calendar reminders for their payroll cutoff and submission dates.

Penalties for Late FPS Submissions

According to HMRC, "HMRC's automated penalties for late FPS submissions start at £100 per month for employers with 1-9 employees." For a pre-seed deeptech or biotech startup living on grant funding, a £100 penalty is not trivial. These penalties escalate for larger companies. Fortunately, there is a small margin for error. As noted by HMRC, the tax authority "typically allows one late FPS filing per tax year without a penalty." This provides a single grace period for a genuine mistake, but it should not be relied upon as part of your process.

The Employer Payment Summary (EPS): Guide to Adjusting Your HMRC Bill

Many founders ask, "I've heard about an EPS. Do I need to file one every month?" The simple answer is no. Unlike the FPS, which reports what you have paid employees, the Employer Payment Summary (EPS) is used to adjust what you *owe* to HMRC for a given tax month. It is only required in specific situations and acts as a signal to HMRC about reclaimable amounts or special circumstances.

Common Reasons to File an EPS

You should file an EPS only when you need to claim reliefs or report items that are not included in a standard FPS. Common triggers for an EPS include:

• Reclaiming Statutory Payments: This is the most frequent reason for startups, covering payments like statutory maternity (SMP), paternity (SPP), adoption, or shared parental pay.
• Claiming the Employment Allowance: If eligible, this allows you to reduce your annual National Insurance liability by up to £5,000. You must file an EPS to claim it.
• Declaring No Employees Were Paid: If you have no employees to pay in a tax month (for example, if you are a seasonal business or between hires), you must submit an EPS to inform HMRC not to expect an FPS or payment.
• Reporting the Apprenticeship Levy: According to HMRC, "The Apprenticeship Levy applies to employers with an annual pay bill exceeding £3 million." Once your startup crosses this threshold, you must report and pay the levy via an EPS.

The submission deadline is also different. HMRC states, "The deadline for an Employer Payment Summary (EPS) is the 19th of the month following the tax month being reported."

How an EPS Impacts Your Cash Flow: An Example

A scenario we repeatedly see is a Series A SaaS company navigating its first instance of statutory maternity pay. The EPS becomes a critical tool for cash flow management. For example, consider a startup with a total monthly PAYE and NI liability of £12,000. An employee is on maternity leave, and the company pays out £1,600 in Statutory Maternity Pay (SMP), which it can reclaim. Without an EPS, HMRC would expect the full £12,000. By filing an EPS, the company notifies HMRC it is reclaiming £1,600, reducing the amount due to £10,400. Incorrectly compiling or failing to file an EPS when needed is a direct cause of liability mismatches and can mean you overpay HMRC, tying up cash that should be funding growth.

A No-Panic Guide to Correcting Payroll Submissions

Inevitably, mistakes happen. You have just discovered last month's payroll was wrong. How do you fix it without making things worse? The key is to understand the correct procedure for the situation, which avoids triggering unnecessary compliance flags. The method for correcting payroll submissions depends entirely on when the error is found.

Correction Before Payday

If you find an error before an employee's payday and have not yet submitted the FPS, the fix is simple. You just amend the figures in your payroll software and process the pay run and FPS as normal. This is the easiest scenario to resolve.

Correction After FPS in the Current Tax Year

If you find the error after submitting the FPS but within the same tax year, the standard method is refreshingly straightforward. You correct the error in your *next* regular payroll run. For example, a professional services firm realises it underpaid a consultant by £500 gross in Month 4. In the Month 5 payroll, they add the £500 back payment to the consultant's usual salary. The FPS for Month 5 will report the higher payment for that month, and crucially, the year-to-date (YTD) figures on that submission will now be accurate. HMRC's system automatically uses the latest YTD figures, effectively self-correcting the previous error. There is no need to file a separate correction or another FPS for the previous month.

Correction for a Previous Tax Year

Correcting an error from a previous tax year is different. The UK tax year, as confirmed by HMRC, "ends on April 5th." In the past, this required a separate filing called an Earlier Year Update (EYU). However, the process has been streamlined. As per HMRC, "Corrections to a previous tax year are now primarily done by submitting an FPS with correct year-to-date figures for that previous year, rather than using an Earlier Year Update (EYU)." For practical tips on resolving employer liabilities and payments account errors, see guidance from professional bodies such as the ICAEW. This means you would submit an additional FPS dated for the last day of the previous tax year (e.g., April 5th) containing the final, correct YTD figures for the affected employee.

A Staged Approach to HMRC Payroll Compliance for Startups

The required approach to UK payroll reporting evolves as your startup grows. Your priorities for HMRC payroll compliance should align with your company's stage to manage risk and resources effectively.

Pre-Seed to Seed Stage: Focus on Consistency

For Pre-Seed to Seed stage companies, the mission is singular: consistency. Focus on submitting an accurate Full Payment Submission (FPS) on or before every single payday. At this stage, the risk of a £100 monthly penalty for late filing is a tangible hit to a tight budget. Use the built-in RTI features in tools like Xero and set firm calendar reminders. Ensure you follow a robust process from the beginning with our first employee payroll checklist.

Series A Stage: Manage Complexity

At the Series A stage, your team is growing, and complexity increases. You are more likely to encounter situations requiring an Employer Payment Summary (EPS), such as employees taking parental leave or claiming the Employment Allowance. Understanding how to use the EPS to reclaim statutory pay is no longer just a compliance issue; it becomes a crucial part of runway management, ensuring you are not overpaying HMRC and keeping cash in the business.

Series B and Beyond: Build Robust Processes

By the time you reach Series B, your payroll is a significant operation. With a larger headcount, your annual pay bill may approach the £3 million threshold where the Apprenticeship Levy applies. Proactive monitoring of your total wage bill is essential. At this stage, your finance process needs to be more robust, with clear controls to ensure timely and accurate FPS and EPS submissions every single month. For a practical monthly timetable, link payroll cutoff work to a payroll deadlines calendar. Your payroll submission deadlines should be a fixed, unmovable part of your monthly finance close. For broader context, see the Payroll Overview.

Frequently Asked Questions

Q: What is the main difference between an FPS and an EPS?

A: A Full Payment Submission (FPS) reports what you have paid your employees in a specific pay period and is mandatory for every pay run. An Employer Payment Summary (EPS) is only submitted when you need to adjust what you owe HMRC, for example, to reclaim statutory pay or claim allowances.

Q: What happens if I pay employees early, for example, before Christmas?

A: You must submit the FPS on or before the earlier, actual payment date. However, you should still enter the normal, contractual payday in the "payment date" field of the FPS. This ensures employees' universal credit or other benefits are not negatively affected by an apparent double payment in one assessment period.

Q: How do I know my RTI submission was successful?

A: Most payroll software will provide an immediate on-screen confirmation and a Government Gateway correlation ID. This ID is your proof of submission. If you receive an error message, you must investigate and resubmit. It is good practice to check for this confirmation after every filing to ensure it was completed.

Q: Do I need to submit an RTI report for company directors?

A: Yes. If a director receives a salary through the PAYE system, they are treated as an employee for payroll purposes. Their payment details must be included on the company's FPS each time they are paid, just like any other employee, to maintain correct HMRC payroll compliance.