The coalition government is proposing a revamp of the current pay-as-you-earn tax system in a bid to make it easier for both employers and HM Revenue & Customs to administer.
 
 

HMRC has just launched a consultation document entitled ‘Improving the Operation of Pay As You Earn’ on whether to introduce a single computerised tax account for every employee, which would bring together their full employment and national insurance (NI) records and update all payments in real-time.
 
According to the Financial Times, HMRC has already invested in the necessary software, which it views as being key to plans being drawn up by Work and Pensions secretary Iain Duncan Smith to create a single working age benefit covering people that are both employed and out of work.
 
This is because access to real-time earnings information would enable the Department of Work and Pensions to “more easily improve work incentives and smooth the transition between different benefits and between unemployment and work”, the consultation document says.
 
The document also claims that another benefit of the new system is that employers and employees would no longer need to fill in forms to obtain the appropriate tax code or pay the right tax on time. It should also simplify tax procedures when staff change jobs and remove the need for tax credit and benefit claimants to notify the relevant authorities of changes to their income.
 
At the moment, employers and pension providers need to deduct tax and NI from payments to staff themselves before paying the money to HMRC shortly afterwards. They then report the full details of such payments and deductions only once a year in a process that can lead to the over- and underpayment of tax.