HMRC’s discussion paper on PAYE that has just been issued outlined the most significant reform proposals for the PAYE system since it was introduced 66 years ago.

The new proposals comprise two main elements – the provision of ‘real time’ payroll information and centralised collection of tax and NIC.

Under the new system, information on PAYE deductions would be collected at the time employers pay individuals (real time information), using the BACS system. Responsibility for the calculation of the amounts of tax, NIC and student loan repayments and their deduction would remain with employers.

With real time information, employers paying electronically would send HMRC details of an employee’s pay; the deductions of tax, NIC and student loan repayments; together with information about the payee’s identity. This would be for all employees, including those from whose wages the employer is not required to deduct any tax, NIC etc.

The information would be produced automatically by the computerised payroll system when raising the payment and would be sent to HMRC via the BACS electronic payments system as part of the payment instructions but the reality of such proposals have been called into question. This employment tax expert whole heartily agrees with Karen Thomson, associate director of policy, research and strategic visibility at the IPP who has stated that “Whilst many support the idea of real time data, there are a lot of operational issues that need to be sorted out.

“The big issue here of course is central collection. The IPP has huge concerns about this and at this moment in time would not support it. The discussion document suggests that the employer, via the banking system would work out the gross pay and inform HMRC what statutory payments to deduct and so on. The banks would then (via BACS) calculate what tax and NICs are due. They would then notify the employer what is taxable and what NIC-able. All of this means that employers would be issuing a payslip which outlines the gross pay but not the net pay.

“The other issue is that government departments are having to reduce their spending by up to 25%. At the moment, employers field a lot of PAYE enquiries from employees. If HMRC is responsible for calculating tax and NICs, they will be the ones employees turn to with questions – and they’re over-stretched when it comes to answering queries as it is.”

It really doesn’t take brain of Britain to work out that giving HMRC at the current time more responsibility for answering tax payers queries is a seriously bad idea – how many of these people “dreaming up” such proposals have tried to contact HMRC via the normal channels?