CIoT warns PAYE reform is going to cost

Plans to overhaul the PAYE system for the 40 million people paying tax
through it will need a major injection of cash if it is to work and must also
look to avoid some major pitfalls.

The government’s central proposal is for ‘Real Time Information’, which would
see a more frequent flow of information from employers to HMRC to increase the
accuracy of PAYE deductions and tax credits.

However the paper also floated the much more ambitious idea of “Centralised
Deductions” where HMRC would, as the holder of all relevant information about
each employee’s tax liabilities, deduct the tax before passing on the net salary
to the employee.

The CioT said: “Government proposals for improving the PAYE system are going
to present “significant challenges and will require the investment of
substantial amounts of time, money and attention to detail if they are to work
successfully.”

The
government recently came under fire after it came to light more than 6 million
people had paid the wrong amount of tax.

John Whiting, CIoT tax policy director, said:

“The fundamental aim in this area has to be to get PAYE deductions to be more
accurate so that the numbers of taxpayers over and underpaying each year are
significantly reduced.

“The idea of information flowing from employers to government as soon as
circumstances change, rather than being reconciled at the end of the tax year,
is a seductive one, but the [Centralised Deductions] proposal would be likely to
load additional costs onto employers, particularly those who do not currently
use electronic methods for paying their employees.”

Instead, the CIoT pushed for a “centralised calculation” approach. Under this
method, HMRC would do the calculations to arrive at the PAYE, NICs and student
loan repayments due with the most up to-date infromation.

HMRC would then simply notify the employer as to what deductions to make and
the employer would make those deductions as it does now.

This would allow the employer to retain a greater control over its funds
while HMRC deals with all the calculations through a central processing engine.

“This might be a first stage along the route to centralised deductions, i.e.
to build confidence amongst employers and employees in the HMRC calculator, and
enable teething problems to be ironed out with the assistance of employers,”
The CioT added.

Further reading:

CIoT
wants to be kept informed of PAYE problems