Real-time PAYE a step closer

THE TAXMAN is pushing on with plans to collect income tax and national insurance contributions from employees’ pay packets in “real time” as part of an overhaul of the Pay As You Earn (PAYE) system.

In the second part of a consultation on updating PAYE, HM Revenue & Customs proposes that employers will send HMRC information about tax and other deductions from employees pay when, or before they make the salary or wage payment to the employee, rather than sending returns at the end of the year under the current system.

This will mean that annual employer returns can be phased out, reducing costs for HMRC and employers, the taxman said. HMRC will use the real time information to update records when a taxpayer changes employer – removing the need for employers to separately send forms P45 or P46.

HMRC said that the real-time PAYE system, which is due to be in place by October 2013, will be phased in from the start of next year, will have a number of benefits, including enabling HMRC to adjust employees’ tax codes during the tax year to reflect their changing income and therefore reduce the need to send employees repayments or bills after the end of the year.

HMRC came under fire earlier this year after errors in PAYE tax codes meant millions of people paid the wrong amount of tax.

HMRC said that the majority of respondents to its first consultation on PAYE, published in the summer, supported a move to a real-time system.

To minimise costs to employers, the information will normally be gathered automatically through payroll processing software and sent to HMRC either automatically at the time electronic payments are made through BACS, or over the internet or an alternative channel by the employer or their agent, HMRC said.