Posted: 30/07/10 by Northamptonshire Chamber
HM Revenue & Customs (HMRC) wants to hear your views of how the Pay As You Earn (PAYE) system can be improved to make it more efficient for millions of taxpayers. In particular, HMRC is looking at how more frequent or “real-time” PAYE information could support the tax and welfare system.
Exchequer Secretary the Right Hon David Gauke MP said: “The launch of the Office for Tax Simplification marks a very important step towards making the tax system work better. But simplification mustn’t stop there. The PAYE system needs to respond better to the circumstances of the individual taxpayer because only in this way will we be able to reduce errors and provide taxpayers with the clearest picture possible of their tax and allowances. We also need a PAYE system that reduces the burden on employers. We would like to hear from all who have views on how a real-time system could best meet their needs to ensure that we deliver a 21st century PAYE system.”
Launching the discussion document – Improving the Operation of Pay As You Earn (PAYE) – Stephen Banyard, HMRC’s director of the Business Customer Unit, said: “We have improved the PAYE system in recent years but it is essentially the same process that was designed in the 1940s. We want to explore how the PAYE system could be improved to make it easier for employers and HMRC to administer. We want the people who use the system every day – employers and payroll providers – to give us their views on the collection of real-time information.”
The document describes the options for real-time information and a longer term one of “centralised deductions” which could move tax calculation away from employers altogether.
HMRC believes this real-time information would:
- make it easier to ensure individuals pay the right tax after a change of job and possibly remove the need for the P45/P46 procedure;
- offer the prospect of simplifying the PAYE end of year reconciliation process for employers and HMRC;
- allow income related benefits and welfare payments to better reflect the current circumstances of the individual; and
- remove much of the uncertainty that leads to errors in the Tax Credits system.
In the future, it could be possible to build on this option and make a more substantial change (called “centralised deductions”) to the PAYE system in which the responsibility for calculating and deducting tax, National Insurance Contributions and student loans would be moved from employers to HMRC. Combined with real-time information, this could reduce the employer burden by up to £500m and result in more accurate tax deductions, especially for those for whom PAYE currently works less well – pensioners, agency workers and those with several jobs. There could also be a significant reduction in the cost of administering PAYE for HMRC.
HMRC will consider making any change to the tax system by the extent to which it would:
- support the Government’s wider tax and welfare agenda;
- reduce costs borne by employers, individuals and HMRC;
- ensure people are subject to the right deductions without needing to apply for refunds;
- reduce tax unpaid through fraud and error; and
- promote economic growth.
KEY PAYE FACTS
- Introduced in 1944
- HMRC spends around £1 billion on PAYE administration each year
- Employers spend £0.7 billion on PAYE administration each year
- Collected £249 billion tax and National Insurance a year and £1.1 billion in student loan deductions in 2009/10
- Equates to about one penny per pound of tax to collect
- Involves 30 million citizens, two million employers and pension schemes
- Ensures that over 25 million employees and pensioners do not have to file a Self Assessment return or make a payment at the end of the tax year