The future of PAYE: How the 66-year-old tax system is changing

Summary:Real-time information could spell the end of troublesome year-end tax reckonings

...make some changes to their current payroll processes," HMRC's consultation document says. "By embedding the new reporting processes into the regular pay run, when deductions are calculated and recorded, the additional time that the employer needs to spend on reporting to HMRC should be marginal.

"This would be particularly so where payroll software is used and the software deals with reporting as an integral part of the payroll run. Once the RTI system has bedded in, and employers have successfully switched to the new system, they would no longer have to submit P14/P35 end of year returns to HMRC and the procedures for joiners and leavers would be simplified. P11Ds (Benefits in Kind) would remain."

The change could benefit organisations, according to Richard Baron, head of taxation at the Institute of Directors (IoD). "RTI has the potential to be pretty useful because you wouldn't necessarily have to bother with P45s and P46s anymore. The new employee would just show up on your payroll file that month and the Revenue's computer would automatically clock them," he said.

As for the procedural switch, the IPP's Gibson reckons the average finance department will easily take it in its stride. "RTI is pretty much how we do things now except that HMRC will be able to see data in-year more frequently than currently," she says. "A lot of your larger employers are going to be producing monthly returns internally within their organisations anyway... so the only difference is they're not submitting data to HMRC, it's just kept in-house for the records."

Ball of paper: Proposed changes to PAYE could mean the end of several paper forms

Proposed changes to PAYE could mean the end of P45 forms
(Photo credit: Shutterstock)

"When I was a hands-on payroll manager, I used to religiously balance my payroll every month [anyway] because if you found an error in that month, it was so much easier to find and correct than it was at the end of a tax year," Gibson added.

To Bacs or not to Bacs
The main channel that HMRC is proposing employers use to send it RTI data is the electronic payments system Bacs, sending payment data alongside their regular payment instructions to minimise the extra legwork created by the new system.

According to the BCS' Green, around five per cent of UK workers don't get paid via Bacs, however. "There are some end users who will just not use the banking system in that way at all - they might still pay cash. If you only employ two or three people why would you bother? Once you know what net pay is, you can write them a cheque or give them cash... those people will be outside Bacs."

The consultation document says that smaller employers - those with under 50 staff - who do not use Bacs will initially be able to submit RTI through the government's web portal, the Government Gateway. However, HMRC is consulting on...

Topics: Tech Industry

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