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HMRC –The Media’s Latest Whipping Boy?

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You know you're down when the media start to make you a story-time favourite. HMRC made the front page of The Times business section several times last week. The latest story is a spin on something we reported here on 6th August 2010; namely, HMRC's consultation document on changes to the UK PAYE system.

The consultation was initiated to engage tax professionals on ways of simplifying the PAYE system. With the benefit of hindsight and knowing now that HMRC was aware of the PAYE chaos as early as July, it's not hard to guess why they felt change was necessary!

In any event, the main topic of the consultation was the move to "real time" information.

So what's the concept?

At the moment, the only reporting to HMRC an employer undertakes occurs after the end of the tax year when they are required to send in a summary of salary payments. The idea of ‘real time’ is that information would be sent electronically to HMRC at each payment date. This would mean HMRC could undertake reconciliations throughout the tax year and, it is suggested, reduce the number of people paying the incorrect amount of tax. So far so good; this certainly has the potential to reduce PAYE errors if operated and supported properly.

So what's all the fuss about?

Well, HMRC's consultation document moves on from real time to "Exploiting real time". The main plank is that of "Centralised Deductions."

"Under Real Time Information employers would already be sending information about income and deductions to HMRC with each payment to an employee. HMRC would hold this information in a consolidated real time tax account for each individual. Under Centralised Deductions, it would expand this real time tax account to include details of the individual’s personal tax allowances and other reliefs that may be due."

"HMRC would also construct a central calculator to work out the correct deductions of tax, NIC and student loan repayments from an individual’s pay."

Basically HMRC is proposing to build a centralised clearing house for salary payments whereby an employer would send the gross monthly (or weekly) salary to HMRC, HMRC would deduct the tax and NIC they believe were due before forwarding the rest to the employee.

It has to be stressed that this is an idea only. It is not policy and is not even a concrete proposal. HMRC itself calls this a "radical idea" and like all radical ideas, it has not been well accepted. When the document was first issued nearly six weeks ago some very forceful opinions about HMRC's ability to run such a system were expressed. In the interim, the PAYE chaos has reigned supreme and the ‘Centralised Deductions’ idea is now getting its 15 minutes of fame.

Is the fuss justified?

Yes and no. HMRC should be given credit for trying to solve the problem and a lot of the criticism out there is not constructive; we continuously ask that the Civil Service shows some ingenuity in problem solving and then shoot it down when it does.

That said, the point still needs to be made that HMRC does not have the best of records with data control (25 million taxpayer details lost a few years ago) and with the repeated delays in implementing the new PAYE system and then the ensuing PAYE errors, many legitimate questions do remain about whether this is the best strategic move forward for the PAYE system.

We agree that PAYE as a process needs overhauling and believe that some form of online portal is a must. Already such portals are already available in other countries. With the implementation of the NPS (the new computer system), this at last should be a viable proposition.

Who knows at this stage what changes will emerge but rest assured, we'll keep you updated with whatever comes out of the consultation.