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

...whether all payments should be made electronically via Bacs in future - an issue SMEs need to factor into their future payroll plans.

The introduction of RTI
HMRC has set a completion date for delivering RTI of April 2014. It's proposing IT infrastructure be in place by April 2012, and is currently in the process of developing a high level specification for software developers.

The CIOT's Whiting describes the RTI timeframe as "challenging", saying: "That is only 15 months away. We're talking about major system overhaul."

Calculators: Will employers or the Revenue be doing PAYE tax deductions in future?

PAYE: Payment data will have to be sent to HMRC at the point of payment
(Photo credit: Shutterstock)

The IPP's Gibson's major concern over the looming shift to real-time information is that HMRC's systems are robust enough to cope - and that it builds in enough time for new processes to be thoroughly tested and to allow payroll software providers to make the necessary updates before any national policy rollout.

"With any computerised system when changes are made there are bound to be hiccups - it doesn't matter how large or small the organisation is. The problem is with the HMRC, because they're a national organisation and provide a service for the whole of the UK, when something goes wrong the impact's huge because it affects a lot of people," she said.

In recent years HMRC has overhauled PAYE's backend - since 2009 it has been streamlining record keeping by consolidating 12 customer databases into a single database, called the National Insurance and PAYE Service (NPS), that contains one record for each individual holding all their PAYE details.

"Some of the issues that have come out of the NPS system have really caused tremendous problems for employers so that would be the concern," said Gibson, "that the consultation period and development phase is long enough to enable robust testing in live environments to ensure that when this is rolled out nationally most of the major things that can go wrong have been identified."

In an earlier proposal for evolving PAYE, HMRC had included a second phase - known as centralising deductions (CDs) - in which it also proposed acting as the payroll function, by receiving gross pay, making deductions and sending net wages on to the employee. However CDs have not been included in HMRC's consultation document or its business plan, and so appear to have been shelved indefinitely.

Stepping away from CDs is a welcome move, according to the IoD's Baron, who dubbed the plan for HMRC to pay wages "an absolute disaster".

"You can't trust the government with our gross pay," he said. "Sooner or later it would go wrong and none of us would get paid."

Topics: Tech Industry

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