Q. I have heard that the Government is proposing changes to the current legislation on Pay As You Earn (PAYE). How will this effect employers and what additional administrative burdens, if any, will it place on them? A. As part of its ongoing review of taxation, the Government has put forward ideas for overhauling the current Pay As You Earn (PAYE) system and H M Revenue & Customs (HMRC) have released a discussion paper outlining its proposals. The idea was first raised by George Osborne during the Conservatives’ election campaign but has been met with suspicion by both accountants and payroll professionals. The new proposals if introduced, would represent the most significant changes to the PAYE system since it was introuduced over 60 years ago. The current proposals comprise two main elements – the provision of real time payroll information and centralised collection of tax and NIC (National Insurance Contributions). Under this new system, information on PAYE deductions would be collected by HMRC at the time employers pay individuals (real time information), using the BACS system. The responsibility for the calculation of the amounts of tax, NIC and student loan repayments and their deduction would still remain with employers. With real time information, employers paying electronically would send HMRC details of an employee’s pay; the deductions of tax, NIC and student loan repayments; together with information about the payee’s identity. Obviously, this is a major change from the current process where HMRC have no knowledge of the taxpayer from whom the tax/NIC has been collected. At present this is only provided on the submission of the annual PAYE return (form P35) or during an year PAYE audit. This is seen as one of the major benefits to HMRC, as it will potentially remove the annual bottleneck for both themselves and employers of having to complete the end of year PAYE return. HMRC would expect the information to be produced automatically by a computerised payroll system when raising the payment and sent to them via the BACS electronic payments system as part of the payment instructions. The major objections to the proposed system however revolve around the issue of Centralised Collection and how this would work in practice. The discussion document suggests that the employer, via the banking system, would work out the gross pay and inform HMRC what statutory payments to deduct and so on. The banks would then (via BACS) calculate what tax and NICs are due. They would then notify the employer of what is taxable. All of this means that employers would be issuing a payslip which outlines the gross pay but not the net pay. Many fear that the greatest impact of this will be felt by employees in the lower pay bracket who will not know what net income they have until it is credited to their bank account. At present, the proposals are only a discussion and before any further steps are taken a formal consultation process will be held. Hopefully the Government will listen to the comments and arguments being put forward professionals, employers and all affected parties. Taxwise is available to help answer any tax queries. Just call the Advice Service on 01455 852555 and one of our specialists will be happy to help.