PAYE improvement – the discussion

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LITRG welcomes the opening of discussions on PAYE reform, but suggests HMRC exercise caution by ensuring that the detail is carefully thought through before moving forward.

Bringing PAYE up to date – the story so far

The PAYE computer system has been upgraded in recent years so that it should now be capable of increased automation to reconcile individual taxpayers’ various records together and calculate their overall tax liability for a year. This has resulted, as widely reported in recent weeks, in the system now starting to issue calculations to taxpayers showing tax under- or overpaid for 2008/09 and 2009/10.

Issues remain, however. For example, although we understand HMRC have been working behind the scenes to clean up the data in the new system, some doubts remain over the accuracy of calculations and the system’s apparent limitations in producing a clear explanation of why the correct tax has not been deducted in the year. This illustrates how vital it is to ensure cleanliness of data and robust testing before moving forward with new developments.

Discussion of future developments

So, whilst we support HMRC’s intention to review PAYE outlined in their recent discussion document and consider ways of bringing it up-to-date to cope with modern working and pension patterns, we suggest they move forward with caution.

Some of the issues to consider are:

So-called ‘real-time information’ – the transfer of pay details from employer to HMRC each time an employee is paid – will vastly increase the volume of data coming into HMRC’s systems. This raises concerns over ability of those systems to cope and questions as to how the data will be used with a view to increasing efficiency;
Closer working and sharing of data with DWP will be essential if current issues surrounding taxation of state benefits are to be rectified moving forward;
Use of PAYE data in terms of reducing tax credits and benefits error will be of limited advantage unless the rules are carefully reviewed and alignments considered – for example, looking at the different definitions of income for tax, tax credits and benefits. Further, it is necessary to consider – in conjunction with DWP’s concurrent 21st Century Welfare consultation – how taxation of individuals can tie up with couples’ claims for tax credits and benefits (further complicated by the definition of a couple differing between the two). Moreover, there will remain an issue over how the self-employed fit into the picture, for whom equivalent real-time information will not be available;
System design needs to consider the detail of potentially complex, albeit in perhaps some cases small minority, situations. For example: how PAYE can cope better with people coming into and leaving the UK; and how changes to the system could impact on ‘accidental employers’ – recipients of local authority direct payments who employ their own carers.

Future rounds of consultation will need to consider the more detailed aspects of the proposals and we look forward to participating further should they be taken forward.

Our full response to the consultation can be found on the LITRG website.

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About The Author

The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation to give a voice to those who cannot afford to pay for tax advice. LITRG comprises tax specialists from professional practice and the voluntary sector, from publishing and from HM Revenue & Customs, together with people from a welfare benefits and social policy background. Visit www.litrg.org.uk for further information.

Article Added Monday, 27 September 2010 | 807 Hits

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