PAYE has remained largely unchanged since it was introduced in 1944 and HMRC believes it needs to be updated to meet the needs of the 21st century.
The forthcoming introduction of Real Time Information (RTI) will mark the biggest change in Pay as You Earn (PAYE) for over 60 years.
It will impact upon both employers and pension providers. Under RTI, employers and pension providers will have to send information in ‘real time’ to HMRC – when or before they pay their employees.
The Government has set the October 2013 deadline for the introduction of RTI to coincide with the unveiling of the DWP’s new Universal Credit system. The Universal Credit is intended to simplify the welfare system to make work pay and combat unemployment and poverty.
The aim of this new welfare system is to address the complexity within the current benefits and tax credit systems, and move people out of poverty by making work pay. In order to do this the DWP will need real time information about an individual’s income.
For people who pay tax on their earnings through the PAYE system, Universal Credit entitlement will respond to earnings information, received through HMRC’s automatic ‘Real Time Information” PAYE data transfer.
With automatic enrolment starting to take effect in October of this year and following industry lobbying of the Government, the HMRC have now belatedly make it clear there is no requirement for the salary sacrifice of pension contributions to last for a specified period of time, or until the occurrence of a particular ‘lifestyle change’.
A jobholder can therefore opt-out of an automatic enrolment arrangement, varying the terms and conditions relating to remuneration, without any adverse tax consequences. This is a welcome and necessary change by HMRC.
However, news of the Revenue’s agreement to make these changes came out in April, when providers that had been instrumental in lobbying the Government on this issue, announced the HMRC had agreed to this.
In view of the imminent introduction of automatic enrolment, it is somewhat frustrating that it has taken another two months for the guidance confirming this change to actually have been issued. Perhaps HMRC would like to join us in real time!
Fraser Smart is managing director of pensions, employment benefits and investment consultancy, Buck Consultants.
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