Business News
HMRC to consider changes to PAYE system
The HM Revenue and Customs (HMRC) have their thinking caps on again as they consider proposals that would see the tax authority gain the power to calculate and deduct Pay As Your Earn (PAYE) tax from a central location.
The plans, which formed part of the recently completed consultation on reforms to the PAYE system, will require employers to supply HMRC with ‘real time’ information about their staff’s incomes, tax and NIC deductions at the time of payment, rather than once a year as it is at the moment.
The HMRC will also set in a place a central ‘calculator’, on which it will work out the appropriate tax deductions, national insurance payments and student loan repayments.
The plan aims to ensure that the right amount of individual tax will be calculated in ‘almost all situations’ and will ‘reduce error and confusion caused by tax codes’ currently in place. It also claims that it will save businesses around £500 million a year in admin costs.
The newly issued HMRC paper outlined: "Under Centralised Deductions, the employer would send the gross payment through the electronic payment system to a central calculator where the deductions calculated by HMRC would be made automatically. The resulting net payment would then be sent to the individual (employee) bank account and the deductions would be paid directly to the government."
The current rules see the employers working out their employee’s tax contributions according to the wage they pay them. Now however, the HMRC will bring together all information it holds on that person, e.g. if they also have another job or income source, to ensure each taxpayer is paying the correct, full amount.
HMRC have emphasised that whilst the process will change, this will not allow them greater visibility of the information contained in individual taxpayers’ bank accounts.
They commented: "The system would adhere to the high standards of taxpayer confidentiality that characterise the existing system."
"These are not proposals; they are ideas intended to get a discussion going about what could be done to improve PAYE.
"It is for Treasury ministers to decide about any possible changes. The government is committed to making PAYE better serve all taxpayers. The discussion document is designed to start a conversation about as many ideas as possible. The centralised deductions concept is not about wages being centrally administered by HMRC or any other agency."
John Whiting, tax policy director of the Chartered Institute of Taxation, stated that he doubted whether the proposals in their entirety were possible, but if they sparked debate about flaws within the current system that was only a good thing: "You can see the idea of HMRC effectively running the whole of the payroll system is a non-runner, quite frankly.
"But we should talk about how some of the more desirable aspects of the paper - the centralisation of information by the Revenue, the axing of paperwork and the reduction of the burden on employers - could be brought forward. If they had been in place, the problems we are now seeing in tax coding would probably not have happened."
