Tax specialists issue PAYE warning

Tax experts say there could be “grave consequences” unless problems with the PAYE system are resolved before the introduction of a new system.

The Low Incomes Tax Reform Group (LITRG), an initiative of the Chartered Institute of Taxation, spoke out in July following publication of the National Audit Office (NAO) report on the 2010-11 accounts of HM Revenue & Customs (HMRC). The report noted that “stabilisation” of PAYE would not be fully complete until 2013.

LITRG chairman John Andrews said: “HMRC’s failure to clear past years’ debts and repayments promptly through the PAYE system has led to hardship for significant numbers of people and has badly dented public confidence in the department.

“HMRC are now working hard to do two things; to stabilise the existing PAYE system and to introduce (in 2013) a new way of employers providing data to HMRC on a monthly basis, the so-called ‘real-time information’ project.

“The new system will be relied upon to determine not only an employee’s tax liability but also their universal credit entitlement.

“It will be essential for all old disputes and PAYE data problems to be out of the way by the time real-time information comes on stream. Any unresolved problems could have grave consequences for the unrepresented on low incomes and make the universal credit delivery fraught with difficulty.”

Mr Andrews highlighted that the NAO had warned that increasing the volume of in-year taxpayer records while reducing the number of HMRC staff could affect the accuracy of PAYE codes and added: “More frequent PAYE data collections could place yet greater burdens on employers – especially small and micro-businesses unused to dealing with HMRC online.

”The anticipated ‘win-win’ situation coming from these two major initiatives could easily turn into a ‘lose-lose’ unless the existing PAYE system is working very smoothly before the radical change of real time information is introduced.”

LINK: National Audit Office report