HMRC to take over payroll processing!
Or so the headlines suggest. In reality this is a very long way off, if indeed ever attainable. The headlines come from the HMRC consultation document entitled ‘Improving the operation of Pay As You Earn (PAYE)’ and here, Nick Butler, Director of JC Payroll Services Limited, outlines HMRC plans and looks at the potential impact on employers.
Since PAYE was introduced in 1944 little has really changed. 66 years ago Mr or Mrs Average had one job or pension and rarely changed jobs, at least not by today’s standards. PAYE rules are therefore not well suited to modern business, giving rise to many adjustments and high administration costs.
HMRC’s first step to improve efficiencies was the introduction last year of the National Insurance and PAYE Computer Service (NPS). NPS will create a single tax account for all individuals, instead of the previous 12 separate databases, which will contain their employment history, historical earnings and National Insurance record.
With NPS in operation the next stage of the evolution of PAYE, as HMRC see it, is the introduction of Real Time Information (RTI). It is this initiative from the consultation paper which is likely to have a tangible effect on employers in the future.
RTI seeks to gather employee payroll data each month in addition to the end of year returns. The result, it is hoped, is that HMRC can handle job changes and multiple employments during the year instead of changes in tax code being made retrospectively.
The paper then addresses how HMRC might exploit a working RTI system further and it is this ultimate vision that has attracted so much press. HMRC suggest that once RTI is in operation the next step is for HMRC to perform the actual PAYE and National Insurance calculations as well, under an initiative called ‘Centralised Deductions’.
This would be achieved by employers submitting additional data to HMRC each month. On paper this appears a ‘workable’ concept. In reality I do not believe that HMRC could handle the circa 30 million payroll calculations on a weekly or monthly basis, let alone adding pension payments into the equation!
In summary therefore NPS is settling down after its introduction and a logical progression is RTI. Indeed, given the state of Government finances any efficiencies are welcome. As for Centralised Deductions, I think these are, at best, some way off.
Nick Butler
