In June’s Budget, the Coalition Government expressed their desire to explore how the current Pay As You Earn (PAYE) system could be improved.
On the 27th July, HM Revenue & Customs (HMRC) published a discussion document titled, ‘Improving the Operation of Pay As You Earn (PAYE)’. The document explores options to improve the current PAYE system so that information on PAYE deductions is collected at the time an employee is paid, instead of at the tax year end. A processed referred to as ‘Real-time information’.
Problems with the current PAYE system…
Little has changed to the current PAYE system since its introduction in 1944. PAYE is seen to work well for employees with regular, stable earnings. However, employees with more than one job or with a pension and a job can experience overpayment or underpayment of tax.
Research suggests that around 5 million people calm tax repayment or receive a tax bill because PAYE has failed to collect the correct amount of tax. There are also issues with student loan deductions; repayments can continue well after the loan has been repaid.
Is Real-time information the answer?
Recent improvements in HMRC’s own systems and technology have made it possible to improve the PAYE process.
For employers paying electronically, the Real-time information concept would send details of an employee’s pay to HMRC; deductions of tax, NIC and student loan repayments. The information would be sent automatically via a computerised payroll system at the point of making a payment to the employee.
Benefits of the Real-time information:
· Simply the process for both employers and HMRC.
· Employees are more likely to pay the correct tax.
· Year-end reporting would be considerably reduced.
· Real-time income information would help HMRC pay tax credits.
· HMRC would know the correct amount of tax and NICs that is due to be paid by employers.
To find out more about this issue, visit www.hmrc.gov.uk.
To download HMRC’s ‘Improving the Operation of Pay As You Earn (PAYE)’ document, click here.
