Concerns over centralised PAYE proposal

A leading business group has expressed worries over suggestions that employees' gross pay could be transferred to a central HM Revenue and Customs' computer.

The net pay would then go the employees.

The government is currently examining ways of making the PAYE system more efficient and has published a consultation document on possible changes.

One of the proposed options is the Centralised Deductions scheme. If implemented, it would mean that employers would no longer hold responsibility for deducting PAYE taxes from employees' pay.

Information about gross salaries would instead be handed by employers to HMRC. The tax authorities would then deduct the income tax and national insurance contributions owing before transferring the remaining salary ino workers' bank accounts.

Payslips would also change in nature. They would no longer offer information about tax deductions, details of which would be available online through a central tax account.

HMRC has calculated that the scheme could save employers as much as £500 million.

But the Institute of Directors (IoD) has voiced concerns that any planned HMRC computer system designed to handle gross pay could develop faults that would result in workers not being paid.

Generally, the IoD welcomed moves to improve the PAYE regime in order to avoid mistakes over the amount of tax being deducted.

The employers' group agreed there is a good case for using real-time information and for centralised computations of amounts due, with the proviso that any changes reduce rather than add to the administrative burdens on firms.

But it baulked at the suggestion that gross pay might flow to a central computer, with the net pay then passed on to employees, describing it as "completely unacceptable".

Faults in the system would lead to workers failing to receive their wages, something that would not only be an embarrassment for HMRC but also a disaster for the employees affected and for their relationship with their employers.

Richard Baron, head of taxation at the IoD, commented: "This document contains a lot of good ideas. But the idea that HMRC should be trusted with the gross pay of employees is not one of them.

"The benefits of that proposal can be obtained by other means. We look forward to working with HMRC to devise proposals that will obtain the benefits, without the wholly unnecessary risk."

A spokesman for the government said that the Centralised Deductions proposal had been published in order to prompt debate and discussion.

The government consultation ends on 23 September.

The document can be found at HMRC's website.