Where we stand on PAYE reform

Tax Editor Rebecca Benneyworth summarises the issues raised by the Treasury/HMRC consultation on real-time PAYE information and the phase 2 proposal for centralised deductions.

It seems a long time since we debated the proposed changes to the PAYE system, released for consultation on 27 July. The closing date for responses is 23 September 2010, and we at AccountingWEB.co.uk will be submitting a response to the consultation in the next week or so.

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

Comments
carnmores's picture

Rebecca will it be Pandoras box or just the Curate's egg!

carnmores | | Permalink

the problem will be the contact with people on PAYE , HMRC will not be able to cope - it will be a meltdown that makes the tax credit debacle look like a stroll in the park. Additionally where an employer is short of money to pay both the employee and HMRC what gives and what about the small quarterly braek presumably that goes too. it is meant to cut costs for employers but will they really be able to abdicate responsibility - and finally when it happens you can be sure that compulsory pension contributions wont be far away - this may not be so bad as long as the governement isnt pocketing the cash 

Centralised deductions or centralised calculations

PeterGGreen | | Permalink

I recently attended a software developers meeting in Manchester with HMRC to discuss these 2 proposals.  We broadly agree with the introduction of real time information, but we want the information channel to be the Government Gateway rather than the completely inappropriate BACS system.

Given the contentious nature of the centralised deductions proposal, I proposed an alternate system whereby we communicate with HMRC (via Gateway or some other more immediate non-XML system) a list of employees, NINOS and gross pay (or net pay if grossing up) and they reply with the correctly calculated deductions for Tax, NI and student loans.  We take that information and continue to process the payroll normally.

This gives HMRC the abilty to control tax deductions as they want and removes the needs for tax tables, tax codes, etc etc, while still giving full "added value" to Payroll software providers by allowing to process other net pay deductions etc.  Which we would need to have anyway even with centralised deductions as currently specified.

By changing Centralised Deductions into Centralised Calculations, you get the best of both worlds and remove the main issues facing software houses and employers.  While making contact with HMRC something that the employer has to do, which is as it should be.

Of course there are questions to be answered about this alternative, but broadly speaking it would be much less contentious than handing over your bank account to HMRC!

Peter G Green - Compact Software Ltd.

jimeth's picture

Balanced

jimeth | | Permalink

Rebecca,

Thanks for a really balanced, thought-out analysis. I think this article would form a good basis for a response to HMRC.  Real Time information does make sense.  Centralised deductions is a recipe for complete disaster.

I see no

pauljohnston | | Permalink

problem with your suggestions or conclusion.  Accountsnts on the whole use Computers and I am sure that there are many including me who cant quite understand how HMRC have so many taxpayers with the PAYE not working properly.

The base problem is the collection and processing of the data.  Excuses about muliple employments just dont add up now there is this new computer system.

Two minor changes I would suggest. 

1 all employees have his or her monthly / weekly data electronically transmitted to HMRC even those below the thresholds.  This cuts down the work for employers having to remember to include someone when they breach the limit. 

2  For simplicity all benefits-in-kind which are not reimbursement of expenses be taxed in payroll, the NIC currently not collected from employees could be deat with by extending the 0% limit.

Direct collection of the taxes from employers I dont think will be tollerated especially after the loss of the CD with tax payers records and the recent underpayment demands.

I agree centralisation rarely works and has not done so for PAYE.

Finally an outside body with real teeth to monitor HMRC and PAYE. 

 

 

jon_griffey's picture

PAYE reform

jon_griffey | | Permalink

The problem is that the PAYE system is creaking so badly that it is no longer fit for purpose.  This is largely caused by an overly complex tax system, under resourced HMRC and peoples increasingly complex affairs so it is difficult to see how the proposals such as centralised deductions can possibly work without first having a radical overhaul of the whole system of taxing the employed.  If you have multiple employments or allowances that change with income levels (e.g. age allowance) then you can never pay the correct amount of tax first time.

Perhaps we should move to a CIS type system whereby employment income is taxed at a flat 20% and abolish the personal allowances (perhaps increase Tax Credits or State Pension accordingly) and so everyone will pay the correct amount of tax first time, employers can calculate it easily and there will be no need for P45/P46 procedures, end of year reconciliations, coding notics etc. The idea of centralised deductions etc then becomes more workable.

njhbpp's picture

What Next?

njhbpp | | Permalink

Communication is the key and as time goes on HMRC gets less and less accessible to accountants and even less accessible to the man on the street. How they could possibly provide a service as a “payroll bureau” to all escapes me! If you have ever worked in the area you know how much checking and talking is involved in getting clients payrolls right.

 Have you ever heard the stories of people trying to get through to HMRC to get their codes put right? It involves endless hours of hanging on the phone only to get cut off at some stage for no apparent reason. It often feels as if HMRC are more involved in generating BT profits than helping the general public! The crux of the matter has to be for the Revenue to get better more timely information so that they can issue the correct information for tax to be deducted. The only problem is that this will place an additional administrative burden on businesses as we will no doubt have to move to a system of monthly detailed reports to HMRC. As you say this should at some stage be built into software. I do not in principal have a problem with this area of the proposal. Regarding the “annual review” of employed people’s tax position surely this is a matter for greater education. Self employed people are used to paying the tax based on an estimate and then having a sweeping up exercise once the final figures have been established. Can we not accept that this is a practical way to address the problem for employed people as well as self employed people?  Maybe or maybe not but if the employed tax goes the way of the government calculating tax based on current information what joys lie in store for the self employed?

Why not start with health care workers?

ringi | | Permalink

It is clear that Real Time Information will let HRMC do a better job. However I don’t think it is enough to cope with tax players that have lots of temp work.

A care staff (or nurse) could be working for many agents, each month she will have income from a different subset of agents. No one can predict how much income she will have from each agent each month. So how can a system:

  • Allocation the personal alliance each month so that it is all useable, but the care staff does not get more then the correct personal alliance?
  • Be understood by a normal person?

A can’t see anything sort off central calculation working in cases like the above. I think a statement also needs to be sent from the central system each month to the employee, if they have more than one job.

However we don’t need central calculation for everyone…
 

So what if all of the NHS, local government and employment agencies were required to use a central calculation system. All other employers could be allowed to opt into the central system if they wished. (Another option would be any employer with more than 10 members of staff that had other job could be required to opt into the calculation system.)

Starting a central calculation or processing system based on the health care sector than expanding it out would also be a good way of reducing risk, while covering all the income of a large number of employees.
 

Paul Scholes's picture

Count me in

Paul Scholes | | Permalink

At last some balance to the discussion and, although I've read it twice, not a whiff of hype or doomsday predicting.  I too have no hesitation in welcoming realtime, online information (how about VAT as well?!) but centralised deductions would, I fear, sink an already leaky ship.

I have experienced several messes caused by employers (and pension companies) failing to complete even the simplest of forms (eg P46s) but let's not forget the people who bear ultimate responsibility for their tax affairs...the taxpayers.

I mentioned on another posting (there are so many!) the look of shock that comes over the face of a newly employed young person when they open their first payslip, neither they nor the public in general are properly informed or encouraged to take responsibility for their own affairs and, although there will be the few who deliberately allow confusion to build, with most it is fear of the unknown.  If basic tax & PAYE is explained to them they are better placed to decide whether a problem is brewing for themselves and seek to correct it in advance of 5 April.

So schools & FE institutions have a job to do to stop the rot and for those already in the club, I would suggest that voluntary & charitable organisations (eg CAB & Taxaid) which are already providing basic money & tax advice are better placed to give a wholistic service to the public and so, rather than funding additional facilities via tax offices, these organisations should be funded to up their profile.

Finally if Self Assessment is regarded as a success for those who have to assess their own tax liabilities each year how about allowing an element of Self Coding?

 

What about Real Time Reporting with a tax code of 0 for everyone

ringi | | Permalink

The problem with just having real time reporting is that the tax code is always trying to play catch up. So what about giving everyone with more than one job a tax code of 0, then HMRC sending them a tax refund and statement each month?

The tax refund could be sent ver the “main employer” the next month if there is a “main employer”, otherwise the tax refund could be sent directly into the person’s bank account.

People that only have one job at a time, could be dealt with using the current tax code system, with Real Time Reporting catching problems quicker.
 

PAYE the new System!

wood and co | | Permalink

We have all over the years got sagas to tell about the codings of clients.

On many occasions I have had to challenge a coding due to the Revenue Office not looking at the tax payers breakdown of income from all sources, let alone on occasions allowable expenses.   So when preparing codings there is a need at all times for them to look at the whole picture and not just at PAYE items.

My PAYE staff have also pointed out the need when they are reviewing the state of someones over or underpaid position to check all years and not just the year they are currently reviewing. On more than one occasion if they had checked on the total position they would have found mis allocations etc which when corrected would have cleared the problem.

Hope this is worth including

Anne Marie Sewell's picture

PAYE discussion

Anne Marie Sewell | | Permalink

1   Yes, simplify the personal tax system. Too complicated by far. And simplify tax credits at the same time.

2    No. Do not allow HMRC to calculate tax and NI for employees. Cannot be trusted - data loss is just one example. HMCE inputting errors would be another. What if there were computer problems at crucial moments, as happens regularly with self assessment returns?

3   I agree - phone contact is impossible now. To extend the need for phone contact with HMCE is not a good idea.

4   Yes, if it could be worked cost effectively, regular input from employers' payroll calculations to HMCE could be a way forward. But could this really be worked out cost effectively?

5    But yes, a simple percentage deduction from all employees, as with CIS, with a transfer to the tax credit calculation, monitored personally by the taxpayer/agent, could be a very good way forward.

SimonLever's picture

What happens when outside income changes?

SimonLever | | Permalink

How would a centralised system cope with factors such as pension contributions, rental income, self employment etc.

Whilst I appreciate that these will probably all be dealt with by a self assessment return as is the case now, we have all had cases where the rEvenue have coded in rental income or higher rate dividends into a tax code where the inclusion is not warranted or where the source of income fluctuates year on year. In these cases it is possible to get the Revenue to (eventually) change the code.

Any new real time system would have to be fexible enough to accept changes  where the taxpayer or their agent feels that the amounts coded in are incorrect and need amending.

Additionally if there is to be real time coding/processing  then where there are multiple employments it should be possible for the correct NI situation to be determined so that in the cases where maximum NI is paid over 2 or more empoyments the correct NI deductions are made.

Perhaps it would be possible for tax codes to be sent electronically to each employer/bureau each month by the Revenue and for these to be incoroprated automatically in the payroll software so that when payroll runs are made the correct code is used automatically.

DENIAL

The Black Knight | | Permalink

HMRC seem to be in denial about the cause of the problem, namely incorrect tax codes not the calculation of Paye although some clients will never quite grasp it. Thats what Paye inspections used to be for !

Clients already have access to tools/software to assist them with the calculation of paye but the old addage of rubbish in = rubbish out still applies and I can see this continueing. We often have to go back and ask what the information we were provided with actually meant (basic communication skills as Rebecca mentioned).

When clients make a mess of it themselves, the age of computer software and lack of a back up often means you have no information to work with to resolve the problem.

Will HMRC experience an increased volume of enquiries ? yes ! Who is going to invest in training to resolve these problems when one can simply say phone HMRC. Payroll calculations will become a forgotten skill along with those able to resolve the problems when they do occur.

Added to which, how many payroll ladies will loose their jobs, and will the correct figure for wages ever appear in a set of accounts.

I have no problem with Real time computer information, but we should not have to go to the expense of new software upgrades and training only for the job to be insourced to HMRC.

This will end up like the CIS which we have little to do with. We can see it is not working unlike HMRC, some subbies even tell me that there is no need to make deductions any more. What reconciliations ?

Small businesses often have to juggle the finances,(and not just Paye) and whilst not advocating late payments, sometimes survival requires it. HMRC and the banks will not be flexible and this could see the end of small business unless it goes underground.

 

cfield's picture

Sledgehammer to crack a nut?

cfield | | Permalink

I agree with the last poster that maybe we should just accept that many employed people need to adjust their tax every year as the self-employed already do. Even if they do bring in all these sweeping changes, some people will still fall through the cracks. What then? Rebecca is right that centralised deductions would not work well. In fact, it would be a bureaucratic nightmare, and it would also be the thin end of a very nasty wedge. As another poster said, compulsory pension contributions will be next, and then what else? I also agree with Rebecca that HMRC should examine what went wrong with all the current P800 cases first before deciding what the solution is. As things stand they are proposing all these sweeping changes without even knowing how many people are affected by the current shortcomings in the PAYE system. 6 million sounds a lot but I bet most of these are fairly minor and/or temporary hiccups in their personal tax affairs.

From my experience, there are 3 groups of people who are not well served by the current system; 1) those with more than one job, 2) those who move between jobs a lot, and 3) P11D cases. The system doesn't work well for them due to the lack of up-to-date information. But the vast majority of employees are still well served by PAYE. Why change the whole system and put all this extra burden on employers just to sort out the few employees that aren't? Also, I totally disagree that employers should be burdened with monthly reporting just to help HMRC deal with tax credits better. Tax credits are state benefits, pure and simple. They are nothing to do with employers. The answer with tax credits is to restrict them to people who really need them and stop allowing them such leeway in estimating their income.

Getting back to PAYE, I think a better solution is to focus on the groups I identified above and improve procedures at HMRC. For example, they should be flagging up the difficult cases and referring them to a team with specific responsibilty for getting their tax codes right. They should be more proactive about making sure P45s are filed on time. There should be a deadline for doing this. At present employers can file them when they like with impunity and temp agencies in particular are very slow. With P11Ds, they should separate benefits from expenses on the form and only adjust tax codes for the latter if people fail to claim them back on their tax returns within a year. There is some merit in payrolling certain benefits such as company cars and healthcare but not everything. Small one-off benefits like shopping vouchers and items not known until much later such as overdrawn loan accounts should stay on P11Ds.

A full cost benefit analysis should be done before embarking on huge changes like this. If it only helps to avoid wrong tax codes in a few tricky cases, I would suggest it is not worth it and they should consider more targetted solutions instead. Employers should not be forced to take on yet more admin just to give government better information that may prove useful for other reasons but yield no benefit whatsoever for the employer. We seem to be going down a very rocky road at the moment whereby businesses are being forced to make expensive and time-consuming changes to their systems just to please the authorities (for example, XBRL being rolled out to every tiny little company in the UK rather than just listed companies where it is really needed). They need to start thinking small.

Chris

HMRC are a joke

SXGuy | | Permalink

Lets actually fix HMRC first before we mess with anything.

Lets face it, if HMRC were an accountancy firm they would have lost all their clients by now, the system they work under is a joke regardless of what they do to make lives more easier (for who i dont know)

They may think that taking charge of calculations makes it easier for employers, but i can only see it causing more problems than benifits.

How many of us know the right coding for an employee long before HMRC bother to get round to sending out letters? and how many payroll departments know an employee has the wrong tax code but fails to do anything about it until they receive a letter of notification? quite a lot.

It is in my view, that calculations should remain with the software developers and the paye departments/accountancy firms, and just submit all correct data to HMRC to be processed.

We seem to do a better job than they do, which baffles me everytime considering all they get is the figures to process, its us who do the hard work in the first place.

brendascott's picture

PAYE - real time interaction

brendascott | | Permalink

Until NICs and PAYE are properly integrated, there will still be problems arising from multiple sources of earnings.  HMRC and the politicians should kill the sacred cow of NICs and admit it's just another tax.  I have a number of clients who have primary employment, secondary employment and self-employment - and not all the necessary NICO application forms*are yet available online - nightmare!  The P800s only deal with tax not NICs.

* e.g. CA72A, CA72B

* CORRECTION - they are now, sorry

 

Real Time Information - Yay(ish)! Centralised Deductions - Boo!

Bronsi | | Permalink

Collection of Real Time information could fairly easily be managed by using the existing Government Gateway as is done for EOY returns and in-year data (P45s etc). The system is largely in place.

But why is HMRC suddenly wanting to play around with BACS? To be born lacking in brainpower is unfortunate. To aspire to it? Well.........

The Centralised Deductions issue is just poor thinking from start to finish. What happens to the employer who has merrily been using their payroll to deduct the weekly biscuit quid and lotto syndicate quid off the net pay? That's just the first of many spanners in the works. The size of that particular can of worms is huge, with the potential to cause misery for every single employee in the UK.

Not to mention the huge increase needed in HMRC staffing requirements. At a time when the governement is supposed to be reducing costs and waste?

PAYE reform

Harrisd412 | | Permalink
  1. Besides the original PAYE system when have HMRC delivered a robust computer system that does exactly what all parties expect?
  2. HMRC currently take at least 15 working days to resolve phone queries will they increase resources to provide realtime answers?
  3. HMRC struggle to recover existing debts and they are not preferential debtors - the proposed changes could change that. When there is insufficient cash to pay the employees, the PAYE & NIC will HMRC tell the employee there is no money in the pot until the PAYE has been paid?
  4. I believe the biggest problem is the P46 procedure, not all employers or payroll bureau provide a P46 and if they are provided they are given to people with no knowledge about PAYE (an observation made in your article). Maybe the most cost effective way forward is to adopt the CIS approach towards verification. If there is no P45 you need to verify the employees identity and get authorisation to operate anything other than BR. New employees and new entrants to the UK would need to register with HMRC and if they do not BR would operate.

In  conclusion, what is the real reason behind this move, to stop fraud, identity theft or simply collect more money?

PAYE Reform

vrickett | | Permalink

Whilst I can see problems at every stage of centralised deductions by HMRC, I would like to see HMRC relieve the employer of any tax collecting duties.  I just fail to understand how anyone can hope that the staff at HMRC could possibly cope with the enormity of this proposal.

As all of my clients are private sector business' I would like nothing more than to see the unfair way that employers are expected to cope with a system designed to collect tax for the government and pay for the privilege with empoyers NI contributions.

Unshackle the employers let them use their staff to do work that benefits the business that pays for them and let the public servants, or should that be masters, at HMRC see what its like in the real world.

sally1964's picture

paye for schools

sally1964 | | Permalink

Rebecca

 

Being asked to go into a school to discuss paye and tax with students.

As you have already done this - do you have notes which I can use to do a presentation rather than reinvent the wheel.

Doing it on a voluntary basis.

If poss please email me on sally@dunlopaccounting.co.uk

 

 

 

 

This is a great debate but

pauljohnston | | Permalink

the main problem is HMRC.

The problem is evolving into two parts:

income subject to PAYE

untaxed income - self employment, rental divs, interest and capital gains.

I suggest that HMRC concentrate on the first only and have the rest dealt with by self assessment.

If employers had to monthly report electronically I can see that changes in codes etc could all be calculated by HMRC's new expensive computer and the employer (or his software) be advised by any change of code before the next payroll as long as there was no human inttervention. 

Whilst the CIS idea is great polically the loss of the Personal Allowance is a non-starter

 

Good Luck Rebeccas NOt only have you some great ideas to take with you  - one promoted they then have to get thru internal politics at HMRC.

#

 

 

 

jon_griffey's picture

Loss of personal allowance

jon_griffey | | Permalink

Paul - I don't see why the loss of the personal allowance should be a non-starter - as long as it is handled correctly.  What is it worth?  A little over £100 per month to a basic rate taxpayer?  Why not increase Tax Credits or State Pension accordingly? This can be presented as 'directly targetting the more needy' - indeed there is a precedent for this in the tapering off the personal allowance for income >100K.  It seems to me that a large part of the PAYE system is solely concerned with trying to allocate the personal allowance correctly  - e.g. tax codes, P45's etc and is proving an increasingly difficult task.

personal allowances

The Black Knight | | Permalink

There is no need to loose personal allowances, just the tax codes !

basic rate for everyone, nic unchanged, unders and overs calculated at the year end with a SA return.

BR payers will get a refund encouraging the completion of a return higher rate payers probably complete a return anyway and might be given the option af a monthly standing order or DD payment. Keeping the estimate of the payment away fom the calculation.

Paye was always supposed to be a method of collection not calculation of tax due.

Simon.Bruce's picture

HMRC PAYE Reforms

Simon.Bruce | | Permalink

The idea of a centralised deductions system run by HMRC is unworkable.  There is very little trust of the PAYE system by both public and professional advisers which is not helped by recent clumbsy public comments by their senior staff.  Tax offices are understaffed and it is nigh on impossible to have a reasonable conversation on the phone with anyone.

Your comments on public ignorance of the tax system are well made.  I believe that further centralisation is a recipe for disaster which will create enormous problems for HMRC and tax payers alike.

The media will have a field day though.

@jon griffey

pauljohnston | | Permalink

The Tax Allowances will not be abandoned, the current goverment are pushing them up to £10k over time - tax credits only target certain parts of society and should be exception rather than the rule. 

 

Tax Credits is another HMRC disaster.

 

Another big 'cock-up' on the way!!!

bargainhunt | | Permalink

 Given the government's method of appointing IT companies and previous track record of getting it seriously wrong, i can see that big 'cock-up' is on the way!!

I will start with first one - for NHS Staff - they introduced ESR (electronic staff record) now every time junior doctors (25000 of them) move in august, they invariably get paid wrong salary for the first month - in my wife's case - they forgot to pay her last month!!

POINTS I WOULD LIKE TO MAKE:

1. There should not be any penalties for the employers if the inaccuracies are generated in the information received by the HMRC.

2. HMRC has to provide appropriate guidance and support to employers during the introduction phase and employers should not be left to bear the brunt of cost from technology and accountancy firms.

3. Regarding central calculations, i am happy with it as long as HMRC is happy to take responsibility for the liability arising out of miscalculations and it should be clear from the start that the employers will not have any liability. 

4. There is should be clear clause that the copy of every information sent by HMRC to employer and from employer to HMRC will be sent to employee.

regards

Bargainhunt

 

 

 

PAYE Reform

Homeworker | | Permalink

I would have no real problem with the proposal for real time information, had I not read today that HMRC are to stop sending copies of coding notices to agents from December.  Are they deliberately trying to make life difficult for us!?  I invariably find a high percentage need correction and how many clients will forget to send us their own copies?  How will HMRC cope with sick pay and SMP deductions, or will the employer still be responsible for working those out?

As to centralised deductions, I have several clients with high cash turnover (shops, hairdresser, tearooms) all of whom pay their staff in cash to reduce the amount of cash that has to be banked.  Having to bank that cash would be costly in time and fees.  I would equally object to being told to access my pay information online.  While most households now have computers, many, including myself, do not like online banking and would not wish to take this route.  Add to this the lack of trust in HMRC's security and this sums up to a resounding NO to centralised deductions please.

Linda, Watford

 

Are other countries' tax collecting

pauljohnston | | Permalink

systems in such a mess?  Can we not learn from those that are not?  Is anyone able to provide information please

Other developed countries .....

rbw | | Permalink

...have their own version of PAYE (apart from the French).  But they don't require employer to operate complex codes on a cumulative basis.  As a result they lead on average to more under- and over-deductions; and involve more taxpayers interacting with the tax authority and/or employer during and/or after the end of the year.

I agree with the thrust of the comments - especially taxpayer ignorance.  I recall working as a student 40-odd years ago with factory workers who'd have been hard pushed to compose a sentence.  But they could explain their PAYE codes and check their payslips for deductions before their fags dropped the ash.  These days most graduates don't seem to understand the basics. And I don't believe that is all down to the complexity of the underlying system. 

The problem in getting from where we are to where other countries are is (as usual with tax) that there will be losers. For example, a simpler system with just a few codes?  Yes, Minister. But you will of course need to explain to M thousand employees and N thousand pensioners they will have less to live on during the year while waiting for the end-of-year repayment.  And another P & Q will get more in the year but then have to pay tax in a lump sum.  (The current mess may make that a bit easier to sell because the numbers may be smaller than this year's.  But it is a long stride from where people thought they were.)

Merge tax and NICs?  Yes, Minister.  Now, do you want pensioners to pay around 50% more Minister or do we introduce a new set of tax rates for them?  We will also need to decide what to do about employers' contributions.  How about a new payroll tax with its own winners and losers perhaps?  It wd be your opportunity to intriduce a whole new tax Minister!

I also offer one forecast.  I predict that if the central deductions come to pass there will be a lot of interest in the Brethren and their exemption from online filing :)

Centralised deductions will not work

tuliptownman | | Permalink

I can understand in part the view that real time information may enable tax calculations of those in a number of part time employments correct. However it would not be infallible. I can think of examples of part time employment where gross pay is below the tax and NIC threshold and as such would not normally even be considered for operation of PAYE. The classic is the family member of a self employed individual who genuinely works in the business and takes a small wage whilst also working part time for a large employer. On its own neither employment takes up the personal allowance. Collectively they do. Traditionally it is possible to request that part of the personal allowance be set against the main part time employment where a large employer has the facilities in place to operate PAYE and pay the tax over which ensures that that individual's total tax liability is collected through the year. My concern with real time information is that the system would be too rigid and allocate allowances is such a way that the smaller business ends up operating PAYE. So much for removing burdens from small businesses!

If the system does have the flexibility for allowances to be allocated promptly in a way the taxpayer requests then fine. However it has been my recent experience that the current HMRC coding system is not designed to do this and often it is the smaller source that ends up having to deal with the tax liability. It also happens with annuities. Indeed I am suprised that the annuities industry has not been up in arms about the number of basic rate codes going out on sub £500 per annum pensions paid monthly.  Therefore with real time information one is left with the question of how to get HMRC to implement the guidance at PAYE 13070 which confirms that an individual may elect to use their allowances in whatever way they choose. It is hard enough to acheive that now.

That said I have past experience of temporary workers whose codes often get totally confused because they   leave their employment before HMRC have caught up and often end up on emergency tax for much of a tax year. I thought that the electronic submission of P45 information was supposed to address this but clearly recent events suggest that this may not be the case.

The big issue though that will effect real time information and demonstrate that centralised deductions will not work is that employers can sometimes forget that they are paying someone some overtime/bonus and remember just before the net pay for that week/month is is due to be sent to the Bank. A payroll bureaux (with a smile!) can go back and recalculate with the correct figures because they will have systems to cope. I do not believe that a centralised deduction system would be so flexible. Imagine from an agent point of view contacting HMRC and telling them that the figures are incorrect because the employer has just remembered a few hours overtime or overlooked an unpaid holiday. I can hear HMRC saying they would want to be contacted directly by the employer with an explanation of why they got it wrong, and advising that it is too late - your employees will have to wait until January for their Christmas overtime.

In essence then I would support the idea of real time information provided that HMRC could ensure that there was a general improvement in the response times of changing tax codes where an automated system has ignored the basic principle that a taxpayer can elect for their allowances to be allocated in whatever way they wish. At the moment HMRC seem to be asking for such requests to be made in writing.

I think that the idea of centralised deductions has the hidden agenda of ensuring employers are forced to pay their PAYE on time and if things go wrong on either side it will only lead to an increased breakdown in trust of HMRC especially if they have automatically deducted an incorrect liability from an employer.  We all know that sometimes software programmers get things wrong. Imagine the furore there would be if in the second week of April it was discovered that an incorrect tax band had been set by the IT contractor and it would not be until June before they could put it right! Such things could happen. If it happens with commercial software or a payroll bureaux you can change supplier - that option is not there with HMRC.

PAYE

Anthony G Thorne | | Permalink

If Revenue take over will they be able to offer the tight turn round required for weekly payroll somerimes only 24 hours, be able to amend when employee asks to go on holiday at last minute and other normal events that small business has to cope with when running its payroll.  What will happen when HMRC systems go down and employees do not get paid.   The Revenue need to fix the problems they already have before they look to take on additional burdens. 

Also the system needs to be changed so there is only one deduction and NI called tax which is exactly what it is.

 

nikicaister's picture

Consultation over PAYE reform propsals

nikicaister | | Permalink

As a chartered accountant who now runs a payroll bureau this is clearly engaging me enormously and I am attending a consultation with HMRC later this week - I will post again then. I have also drafted a response which I will post in due course. I am broadly in agreement with Rebecca that the real-time proposals hold water. However, I believe a monthly return is the answer which could be bolted onto most software systems. Where weekly payrolls are running, I fail to see the advantage of HMRC receiving this information each week and question what if anything they would do with it. Equally, a monthly return would then match to a monthly payment thus removing the painful process that we expereince every month of HMRC allocating payments to the wrong periods because clients still don't really understand how to reference online payments. Where I disagree is the removal of the P45 or P46? I see that HMRC are keen for this not be an extra burden (I do not think it can be labeled as anythign else) and fail to see how it can dispense with the starter paperwork. Surely without these documents, how does one levy tax in the first period of payment?

As for centralised deductions my views are probably somewhat stronger. I cannot begin to see how this would work. I know from our experience the lumpy nature of payroll work - how on earth could HMRC begin to resource for such month-end biased workload. Nevermind, where or how they find the necessary expertise. I also dislike the notion that as an employer you would no longer be responsible for making payments to your own employees and indeed not even know how their net had been caclulated. There are lots of issues - advances, deductions, re-runs, production of reports and payslips that have not been considered.

My view, just as yours, is that getting from gross to net is not the issue - we have millions of pounds of private money already invested in software and payroll expertise that achieve this already. The issue is not data out it is data in - if HMRC can give us (employers and bureaus) accurate and timely tax codes we are more than capable of delivering the rest.

Cash flow

mikewhit | | Permalink

"the hidden agenda of ensuring employers are forced to pay their PAYE on time"

Well if they did that for all the Premier League football clubs, tax revenue shortfall would be a thing of the past ...

PAYE consultation -add to submission

David Gordon FCCA | | Permalink

There are fundamental flaws in the proposals, which in part are structural.

When I acquired my first PC in 1979, the first thing we were taught was "Rubbish in = Rubbish out"

I have seen nothing during the intervening years to contradict that.

If HMRC does not get its system in order before any change over, then based on decades of experience "Shit" will continue to happen. I can put it no other way. That is a universal rule which applies to anyone or any organisation that uses computers.

I speak with insider knowledge. I regularly meet with a now-retired manager for the company charged with the installation of HMRC's latest system. He is a quite spoken polite person. Yet his opinion of what was going on is damning.

The difficulty with the current system is not the system per se. It is after all an enormous system at the limits of workable size.

First there is the culture amongst senior HMRC persons never to admit they may be wrong, or have made a mistake.

The recent furore surrounding David Hamnett (CEO of HMRC) is a perfect example of this. Yet he has "Form". This was the man who in September 2008 told a gathering of accountants (at ACCA headquarters), "Please do not send letters to us, use our call system".

I may best illustrate by use of four recent examples:

1)

A medical consultant has income from three paye sources and some self-employed income. He received various code numbers which whe accumulated made a nonsense of his tax payments. You might think that a straightforward request to put all his allowances against one source, and the rest at Basic Rate, or alternatively just tax all the PAYE soures at Basic rate, and set any personal allowances against the schedule D income. -

Might dealt with by a simple letter from the agent, and some intelligent oversight from HMRC. Making it straightforward all round.

Not a chance, this has been going on for months.

2)

A small company client for various reasons, is due a £5,000 PAYE refund for 2009-10. It was agreed back in May.

Despite reminders, and a formal complaint, we have still not received the refund.

 3)

Finally, I had to call the call centre regarding a client. It took three calls to get through. After ten minutes of increasingly fractious conversation, I asked the person on the other end of the 'phone whether he was actually a "Tax officer". To which he replied, he was not. When I asked him please to put me through to a tax officer who would understand my problem, he replied that he was not allowed to do this.

4)

This one is surreal. I had a one-man building company which went down in August of 2008. From time to time the ex-director who is now 72, received demands for PAYE/CIS returns, and notices of accruing penalties.

This despite the fact that we had carefully advised HMRC in writing, in April 2009, and subsequently that the company was Dead, gone, buried, what ever, and we had sent in a final P35. The company owed about £400.

This all culiminated in him receiving in one post,  three weeks ago,  seventeen, (Yes that is correct) pieces of mail on the subject  addressed to the company. 

That is bad enough but is not the surreal bit. When I finally got through to the Debt collection dept of HMRC, and explained the situation, the person on the other end insisted that HMRC had still to collect overdue tax and penalties from the company. When I pointed out, for the third time, that the company was dead, buried, struck off the register, so "There ain't no-one, not no-how to chase or pay", She again insisted that she had to collect the money from the company. I asked her if she understood that in effect the taxpayer was dead? Yes, but she still had to collect the money from the company. I asked her to call her supervisor, to who I explained the situation, which they might check independently at Companies House. Yes, but they could stop sending out the demands to the company. At that point I hung up on them.

None of the above has anything to do with systems or law. It is a fundamental failure of management and administration, and "Company ethos".

From speaking to professional colleagues in practice I guess that my experience is not unusual.

(you circulate this note to them, asking  them for their experiences)

My small practice prepares payroll for approximately 30 small companies.

The above represents a 10% SNAFU rate within  six months.

In conclusion whatever "System" is in place:

Sadly, I have not the slightest doubt that this nonsense will continue, and for objective reasons which I might set out even get worse, but that is for another time.

David Hamnett represents an unchecked point of view that HMRC should make the law as well as police it.

More on another occassion.

------------------------------

Part, the second

As said, my company prepares payroll for about 30 small companies.

The proposed system appears to make no provision for this type of agency.

I would estimate that several hundred thousand small businesses, similar to my clients, payrolls of between one and ten employees use their accountants or direct payroll agencies.

Under the present system organising payroll runs, and or with parallel CIS, is relatively straightforward.

What I read suggests that the proposed systems are designed on several false premises, for example:

1)That the "Employer" is invariably the administrator of the payroll.

2) That the "Employer" is computer literate, a manifest untruth.

3)That the "Employer" is able to manage his tax receipts and payments, without assistance. There are several thousand accountants in public practice, administering tens of thousands of small Payroll schemes who might testify that this assumption is demonstrably untrue.

David Gordon

 

 

 

 

 

cymraeg_draig's picture

HNRC should be kept well away from anything important

cymraeg_draig | | Permalink

Simplify it by all means - it needs it.

But the LESS HMRC have to do with it the more likely it is to work. They really are unfit for purpose and I shudder to think how many people would not get paid on time if HMRC had any role to play in payroll preparation.

rockallj's picture

HMRC must be able tio handle itself properly first

rockallj | | Permalink

I agree wholeheartedly with every post written here.

HMRC must be able to handle promptly and correctly with all the telephone, written and email correspondence it receives first. Then, and only then, can it consider attempting to take on any further responsibilites of any kind.

Quite simple really

PennyC | | Permalink

Until HMRC can demonstrate a proven track record of handling taxpayers' affairs accurately and efficiently, and providing immediate accessibility in problem cases, Centralised Deduction should not even be on the table.

kevinringer's picture

Solution: Monthly PAYE returns and use of HMRC Payroll Online

kevinringer | | Permalink

Problem: HMRC want more up to date payroll information.

Solution: Employers efile monthly returns – same was we do for CIS. If the employer is using third party software then no problem: employer presses the button and off it goes. In fact because we have to do a CIS monthly return, let’s merge CIS and PAYE so that employers only send the one – after all it is all merged on the P35. If the employer does not use third party software then they must use HMRC software – and instead of this being a downloaded from HMRC, the data itself should reside on HMRC servers and the employer deals with the payroll online. Under no circumstances should centralised deductions become compulsory – HMRC couldn’t cope. We should always have the option to use our own third party software run locally.