PAYE problems to last six months

Company payroll departments and payroll services suppliers will be dealing
with tax queries from employees for up to the next six months after it emerged
that millions of people have paid the wrong tax, experts have warned.

As HM Revenue &
Customs begins to write to around six million people
who have paid either
too little or too much tax and national insurance under the Pay As You Earn
(PAYE) system, small businesses with limited payroll staff will face the most

“Some people will have queries for their payroll department,” said Bill
Dodwell, head of tax policy at Deloitte. “If you have several million people
wanting extra copies of their P60s it’s could create pressure for [for payroll
departments]. It’ll probably take three to six months for accountants and
payroll departments to deal with these queries.”

David Whiscombe, partner at BKL Tax, a tax consultancy, and member of the tax
panel at the UK200Group of accountants and lawyers, said the payment errors for
the tax years 2008-09 and 2009-10, underscored the need to reform PAYE.

“While it’s always popular to knock HMRC for getting it wrong, this isn’t
what’s happened in this case,” he said. “The simple fact is that the PAYE scheme
was never designed to cope with the complexity of today’s tax system. It’s been
failing to do so for years and the systematic errors reported over the weekend
aren’t new, it’s just that the introduction of a more sophisticated computer
system has brought them to light for the first time.”

He added that the Office of
Tax Simplification
, which was set up by the government in July, provides an
opportunity to streamline the tax system.

The government is consulting on plans to give each employee be given a single
computerised tax
which brings together their employment and NI records, giving HMRC real time
information of all payments made.

Currently, both employers and pension providers make tax and national
insurance payments for employees to HMRC and report them to the tax office once
a year. Annually reporting those figures can result in under-payments and
over-payments of tax.

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