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HMRC reveals its plans for improving PAYE

July 27, 2010

 

Today saw HMRC publish its discussion document on improving PAYE, which sets out its plan to move PAYE to Real Time Information. HMRC acknowledges PAYE has been unchanged for 66 years since its introduction in 1944. Interested parties will have 8 weeks to respond, to inform HMRC’s further consultation.

PAYE, the tax administered by UK employers, raised over £250 billion in the year to April 2010, at a cost, say HMRC, of 0.4% to themselves and a cost of 0.28% to UK business. HMRC does not account for how it arrives at this cost estimate for UK business administration of PAYE.

HMRC acknowledged that it was the Government’s objective, announced in its June 2010 Budget, to reduce the costs of PAYE for employers and HMRC by simplifying its administration and to increase the accuracy of PAYE data. Its intention is to consult on more frequent collection of information. Currently, under PAYE's original design, employers continue to make payments to HMRC monthly or less frequently on account of PAYE due, but only report to HMRC once a year with an annual statutory return. This annual return, known as a P35, confirms the employer's liability to PAYE retrospectively.

The importance of Real Time Information by making accurate information on an individual’s earnings available to HMRC at the time they are paid, so as to allow Government to assess benefit entitlements with up to date earnings data, is central to the Government’s reform of PAYE.

What the document identifies as a single common thread in a workplace that has become much more complex with widely differing employment patterns since PAYE began in 1944, is the overwhelming move away from cash to electronic payments and the use of BACS to terminate 96% of earnings payments taxable under PAYE.

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