HMRC publishes consultation on PAYE system

HM Revenue & Customs (HMRC) has published a consultation document called Improving the operation of Pay As You Earn: Collecting Real Time Information.

Pay as you earn (PAYE) real time information means employers will send HMRC information about tax and other deductions from employees’ pay when the employee is paid, rather than at the end of the year as at present.

This is the second stage of consultation. There were almost 400 responses to the discussion document Improving the Operation of Pay As You Earn in July 2010. The majority of respondents were in favour of moving to a real time information system for PAYE.

The consultation document issued on 3 December summarises responses to the July discussion document and looks in detail at options for implementing a new real time information system.

Real time information will mean that:

  • Annual employer returns can be phased out, reducing costs for HMRC and employers
  • HMRC will use the real time information to update records when a taxpayer changes employer, removing the need for employers to separately send forms P45 or P46
  • HMRC will have the real time information needed to support the government’s welfare reform agenda
  • HMRC will be able to help prevent and detect errors and fraud within the welfare and PAYE systems
  • HMRC will not need to wait until year end to identify underpayments by employers and collect those debts; and in some circumstances, HMRC will be able to adjust employees’ tax codes in year to reflect their changing income and therefore, over time, reduce the need to send employees repayments or bills after the end of the year.

David Gauke, the exchequer secretary to the Treasury, said: “We are determined to improve the way the PAYE system works and real time information has the potential to reduce burdens on employers.

“Introducing real time information is an important step in modernising PAYE and we want to hear the views of employers, software suppliers and the payroll industry as we develop the new system.

“Real time PAYE information will also support the Universal Credit by enabling Department of Work and Pensions to update information about claimants’ financial circumstances much more quickly without the need for claimants to provide information about their income.”

Stephen Banyard, acting sirector general personal tax, HMRC, added: “We are working closely with customers to develop the real time information system.

“We will pilot the system from April 2012 and begin to move employers onto the new system in stages over the following 18 months. We expect all employers to be using the new system by October 2013.”

Read more articles on the Pay As You Earn systems