TaxCorporate TaxHMRC’s PAYE overhaul sparks widespread industry fears

HMRC’s PAYE overhaul sparks widespread industry fears

Shakeup of how income tax and national insurance are collected could effectively turn the taxman into a payroll agency, advisers warn

Income tax and National insurance deductions have been totted up the same way
since the end of the Second World War, but now the taxman believes it’s time for
an overhaul.

Advisers have warned that the most ambitious option being touted by HM
Revenue & Customs would effectively turn the taxman into a payroll agency,
calculating PAYE upfront rather than checking records submitted by companies.

The Centralised Deduction Plan would see the taxman use more timely
information from companies about income and deductions as a platform for
centralising the calculation and deduction of tax, NIC and student loan
repayments.

This would move the responsibility for undertaking the calculation away from
employers and place it fully with the taxman.

But there are concerns this could take work away from accountants who often
operate payroll services for clients and the idea of the taxman being able to
handle this work has been described as “impossible”.

David Ingall, partner at JWPCreers and member of the UK200 Group, said: “As a
firm operating a payroll bureau for clients, the thought of HMRC offering the
level of service required is an impossibility.”

Employers need one-to-one guidance on a variety of issues, often requiring
help with key services such as wages being reprocessed because of errors, Ingall
said.

“That sort of service is not associated with a government department.
Additionally, the numbers of staff required to undertake this service will be
enormous.”

The overhaul is being floated to achieve two key objectives: cutting out
losses generated through calculation errors and helping foil benefit fraud.

At a time when the UK’s coffers are still creaking, the value in raking the
maximum amount of money in from PAYE is clear.

In the 2009/2010 tax year, the taxman collected £249bn PAYE from income tax
and National Insurance contributions.

Problems currently arise because employers are only required to provide full
information on individuals’ deductions annually, after the tax year has ended.
This has two effects on the operation of PAYE. Firstly, checks that correct
deductions have been made can only be carried out after the tax year has ended.

Secondly, adjustments to tax codes have to be based on estimated income.
Effectively HMRC has to ‘guess-timate’, because factors such as a change of job
and rates of pay mean actual income can turn out very differently from those
predicted when the estimate was made.

The PAYE system also handles pensions, recipients of a state pension and
those on benefits, an area which is vulnerable to fraud.

Alastair Kendrick, tax partner at Mazars, questioned how the taxman would be
able to handle the extra responsibilities, raising concerns about having the
entire operation controlled by the taxman. “What if the whole system collapsed?”
Kendrick added.

Advisers countered that more value could be generated if the taxman gave
accountants access to the systems which calculated the coding notices setting
out how much tax a worker should pay.

“All too often coding notices issued show a lack of thought and contain too
many errors,” said Nick Forsyth of Lambert Chapman.

HMRC is calling for comment from the profession during a consultation period
ending on 23 September.

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