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The Government’s plans to reform the PAYE system are ‘seductive’ but not wholly realistic, according to the Chartered Institute for Taxation (CIOT).
The professional body said the proposals in the consultation document Improving the Operation of Pay as You Earn could provide benefits for HMRC, employers and employees alike, but introducing them would present significant challenges and require the investment of substantial amounts of time, money and attention to detail if they were to work successfully.
The central proposal of the condoc is for a real-time flow of information from employers to the Revenue as circumstances change, to increase the accuracy of PAYE deductions.
The CIOT’s tax policy director, John Whiting, said the suggestion of a more frequent flow of data, rather than a reconciliation of information at the end of the tax year, was ‘a seductive one, but this proposal would be likely to load additional costs onto employers, particularly those who do not currently use electronic methods for paying their employees.’
‘The real benefits of real-time information would only be seen if the system became truly interactive and allowed three-way communication and data transfer between employers, HMRC and employees. We are a long way from that,’ he added.
The Government’s PAYE document also introduces the idea of centralised deductions, under which taxman would, as the holder of all relevant facts about a worker’s tax liabilities, deduct the tax before passing on the net salary.
John Whiting remarked: ‘The proposal… should reduce employers’ admin burdens, but it raises many issues. Having the wages of every employee in the country passing through one huge data processor is high-risk, and many people would be concerned by the prospect of their wages passing through the Government’s hands.
‘HMRC’s help and advice services would need much greater resources if they were going to have to field enquiries about deductions currently being fielded by employers.’
In its official response to the condoc, the CIOT has suggested an alternative approach: centralised calculations, under which the Revenue would make the calculations to arrive at the PAYE, National Insurance and student loan repayments due. The department would then notify the employer as to what deductions to make, and the employer would make the deductions in the current fashion.
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PAYE reform plan 'raises many issues'
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06 October 2010
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CIOT doubt over real-time data flow
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The CIOT says that the Government's proposal is "seductive" but wholly unrealistic. The choice of words is unfortunate as I would not liken the proposal to "Madonna" or even "Jerry Hall". In fact the proposal is dangerous and not in accordance with the present government's policy of decentralisation. This is no more than a move by HMRC of attempting to take control of peoples' pay packets.
Investment: there are funding issues for both Government and Employers alike. Other issues include Architecture software and hardware issues and human resource issues.
The reference to increased accuracy seems to be no more than a cover up of HMRC's failure to act upon information supplied by tax payers.
The present PAYE system is a 1940's system which needs a major overhaul but not one of adopting a centalised approach. This system should remain in the employers' hands or are we entertaining a National Employer concept called UK PLC?
Centralisation: surely this is contrary to the present government edict? We should now ask the Treasury and George Osbourne to comment for their considered views. The IOD are against the proposal and in my view it would be a regressive move by Government. There are other ways to improve the present system for both HMRC and the taxpayer.
John Whiting makes the point that the administrative burden would be reduced for the employer- but what about the financial and fiscal burdens such a system would impose?
Using a centralised data processor may well give rise to security problems with concomitant leaks of information-I would remind people that not long ago we had the NIC records scandal where circa 25M records were lost/mislaid!
It should be noted at this point that HMRC have attenuated the FOI Act 2000 by the back door last year, thereby restricting the taxpayers' right to information about themselves.
With respect to the CIOT, it would be misguided to suggest that a centralised calculation could be an option: the risk areas are (not exhaustive):-
In conclusion the present government should consider an alternative system such as the American approach. Certainly more consultation is needed so that a 21st Century system may be implemented and embraced by HMRC and Employer/Employee alike. This would seem the sensible approach?