An industry body representing freelancers and contractors has questioned HM Revenue & Customs’ readiness for a proposed ‘real time’ Pay As You Earn tax system. Under the new system, HMRC is attempting to avoid year-end adjustments to tax, and instead to update information on tax and national insurance every time a person changes job or adds another source of income.
In April, HMRC introduced a new PAYE system that brought together 12 databases of people's tax into one single view. Any future changes introducing real time are understood to be a significant development to the system.
However, the Freelancer & Contractor Services Association warned of the potentially “huge amounts of additional information” that HMRC would need to be able to process. It also questioned data security, which HMRC has promised to take the right steps for in any new system.
When HMRC launched a discussion paper in July, inviting industry comment, it said the proposed changes “would enable the PAYE system to cope much better with the work patterns of today which involve many more changes of jobs and rates of pay than in the past”. It added that the change “would also reduce the number of people needing an adjustment to their tax position at the end of the year”.
The FCSA said it supported the changes, but warned “success would only be realised if HMRC has sufficient systems and resources” to handle the information.
HMRC is also proposing, in the longer term, to entirely centralise all tax collection and processing, as part of efforts to cut costs and reduce error. This would involve HMRC deducting the tax instead of employers doing so. The FCSA, which represents 50,000 freelancers, said it had “serious doubts” about those proposals, and warned that it could also increase costs to the public purse.
An HMRC spokesperson declined to respond today to the FCSA’s concerns. But he said: “The government is committed to make PAYE better serve all taxpayers. The discussion document is designed to start a conversation and debate as many ideas as possible.” No decisions had been made so far.
A decision is expected to be taken after the Spending Review on 20 October.