September 23, 2010
Following recent turmoil surrounding the Pay As You Earn (PAYE) tax system, a new “real-time” option has been proposed which may eliminate the current problems faced by tax authorities.
Earlier this month, millions of taxpayers were informed by HM Revenue amp; Customs (HMRC) that they had either underpaid or overpaid income tax in the past few years. The blunder has left many individuals out of pocket and calls for a new system have reverberated ever since.
In a speech to the Commons this week, Exchequer Secretary to the Treasury David Gauke has announced plans to introduce a £400 million overhaul of the current system which will reflect the changing habits of the UK’s workforce.
The new system will automatically consolidate individuals' tax records instead of relying on manual collection by several offices dealing with employers' records.
Mr Gauke told MPs he had been "aware" of problems with PAYE "since day one" and had raised proposals for reform, arguing that PAYE was introduced when most people had only one job whereas now it is common for taxpayers to have income from multiple sources.
"The system is outdated, inefficient and burdensome to the Exchequer and taxpayer alike. We need PAYE to reflect the employment issues of the 21st century and that will be a focus of reforms that we take forward as part of our wider strategy for reform," he said.
Under the centralised system, businesses could be forced to allow the HMRC to deduct tax from employees’ wages before they are paid.
While recent problems have dictated the need for reform, the Institute of Directors has questioned the automated nature of Mr Gauke’s proposals, which will see the HMRC making all calculations and distributing employee’s net pay accordingly.
“Sooner or later, the system would break down and some people would not get paid,” warned a statement from the Institute. “That would be a major embarrassment for HMRC and a disaster for the employees affected and for their relationship with their employers.”
