Privatising Pay As You Earn

Wednesday, April 21st, 2010

Privatising Pay As You Earn

The Conservatives have raised the idea of taking PAYE responsibility away from HMRC, but would it really work? – Posted by Simon Sweetman in Tax, In business on Wed, 21/04/2010 – 09:14

George Osborne suggested privatising PAYE.

BACS would be used instead of the current system.

Banks would run it rather than HMRC.

However, the idea could cause more problems than it solves.

The Conservatives have raised the idea of taking PAYE responsibility away from HMRC, but would it really work? Simon Sweetman assesses the case.

It’s not in the Conservative manifesto and when George Osborne suggested it a few weeks ago everyone thought this was one of his pre-breakfast good ideas which had gone cold by lunchtime, but no – his boys have been going round explaining how they are going to take PAYE away from HMRC and give it to the banks. The banks are probably the only organisations in Britain commanding less respect than HMRC for their day to day operations (and HMRC can hardly be blamed for stuffing up the economy).

The idea is to use BACS (run by VocaLink, owned by a cartel of banks). This idea is not new. On the whole, BACS works (though remarkably slowly when you’re waiting for the payment). HMRC was actually thinking about it as the future of PAYE a few years ago and rejected it as too expensive, which leads us to the extra ‘are they sure they know what they’re talking about?’ bit – these proposals would presumably involve scrapping the expensive new PAYE computer system which is just coming online and will hopefully get through its teething troubles (which seem to be caused by legacy work) and start functioning properly next year. Junking a system that actually appears to work is a new one.

What will happen?

The accompanying guff says that 96% of salaries are paid using the BACS system already – a figure that must have been subjected to some sleight of hand, as far more than 4% of wages are paid in cash. I suspect the 96% of salaries applies to those paid by big business, and let us not forget that half the employees in the UK work for SMEs. Let us also not forget that PAYE also applies in particular to pensions.

They claim very particularly that this will end delays in payment of PAYE at a stroke. It might solve the problem of those who won’t pay if the banks whistle the money straight out of the employer’s bank account without so much as a by your leave, but what about those who can’t pay yet? It then goes on to say that there will be increased tax revenues of £1bn a year through the collection of correct tax, as if suddenly everybody is going to get everything right. It talks about everyone having a ‘personal account’.

What’s in it for employers?
They wouldn’t have to do the calculation but what they would need to do is report the gross pay for each employee – or more precisely the taxable and NIC-able amounts of gross pay. Unfortunately this is the difficult bit, with employers already having software to do the next bit. Just about everything it takes away is already done by software, and by free software for the smallest.

One thing that is not in it for employers is cash flow – the gross amount is whistled out of the employer’s account first thing, so there’s no hanging on until the 19th to pay the tax. But what if the money’s not all there on payday?

What is in it for employees?
Nothing much – they get their net pay in the same way, even if it comes to them from VocaLink rather than the employer. However, what if they think it’s not right? They can’t ask the employer any longer, because the employer won’t know anything. They can’t ask HMRC, because HMRC won’t have worked it out. Are the banks going to have extra call centres?

It will also save money because 25,000 payroll staff can be made redundant – whether that includes the payroll staff of businesses, people working for payroll bureaux and people working in accountants’ offices as well is not clear. However, a lot of small accounting firms rely on payroll services as bread and butter work. A rough survey of payroll professionals found that 90% were against the proposals, while the other 10% didn’t understand it; although, to be fair, one would hardly expect them to applaud something that could make them redundant.

Other problems:
What about other deductions from pay, CIS, SMP, student loans, and attachment of earnings? I think most people would cavil at the thought of the state controlling a bank account in their name and deciding what goes in and out of it. I suspect that they might be even less keen on the idea of a private company doing it.

Another consideration is where the figures come from – for instance, for the reintroduced married couples’ allowance? Presumably it would come from tax returns, so there would have to be some kind of mutual access between the individual taxpayer’s account and the tax return data.

There are a lot of questions, and one suspects that this has been set up by people whose only experience is with big business. This is set up for a world where everyone is online and their broadband works, which is not where we live now.

Oh, and who’s going to pay for it? Finally, why (given it will affect almost everyone in the country and supposedly will save billions) is it not in the manifesto for people to discuss?

Interesting thought processes from Simon, but there’s a lot more left in that debate. Is this change for the sake of change, or the way forward? Here at J C Martin & Associates we’re naturally interested in your thoughts? Share them – John

Tags: BACS, banks, CIS, HMRC, PAYE, Payroll, payroll bureau, private account, privatising payroll, small business
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