PAYE: HMRC should prioritise improvements

The Office of Tax Simplification (OTS) has published 'OTS Evaluation Note', which evaluates whether its past recommendations to HMRC on the operation of the PAYE system have been acted upon. It notes that there is a lack of evidence of HMRC planning or prioritisation to address the issues previously raised.

The OTS produced two reports in 2019, which made a number PAYE related recommendations. These reports included Simplifying everyday tax for smaller businesses.

Key issues highlighted in 2019 included:

• The lack of strategic direction for the PAYE regime.
• The need for a fresh review of the PAYE Real-Time Information (RTI) system to identify areas of improvement.
• The need for improved external engagement with payroll professionals and agents.
• The practical issues faced by taxpayers arising from interactions with the PAYE system when starting work, changing jobs or taking on additional jobs.
• Various issues with PAYE codes and coding notices, for example, when people first receive the State pension.
• Issues faced by employees when claiming expenses.

The OTS now suggests the key priority for HMRC and government is to ensure commitment and funding is in place to continually improve and develop the PAYE system and ensure the effective operation of the Single Customer Account.

• The establishment of HMRC’s Income Tax Oversight Group (ITOG), as an internal governance group, is welcomed.
  • HMRC are encouraged to provide direction and transparency around future plans, priorities and work programmes in this area.
• Wider and further engagement with the payroll industry and other tax professionals and agents is encouraged to obtain information and support positive changes.

In respect of particular recommendations previously made, the OTS would like to see:

• Improvements to the quality and detail of PAYE data collected, and its processing, to deliver better outputs and outcomes for employers and taxpayers, particularly in connection with changes in work status such as changing jobs.
• Improvements to the Tax coding system, explanatory notes around tax coding notices, and ways in which taxpayers can make changes to tax codes through their Single Customer Account.
• The design of the Single Customer Account being aligned to RTI data to provide clear, accurate and timely information to taxpayers.

Useful guides on this topic

OTS report on Simplifying everyday tax for smaller businesses
The Office of Tax Simplification (OTS) has published a report ‘Simplifying everyday tax for smaller business’, It suggests that there is much the government can do to make life easier for small and micro business.

RTI: Real-Time Information for PAYE
What is RTI: Real-Time Information (RTI) reporting for PAYE? How does it work?

PAYE Codes: Starters/leavers & 0T code
What tax code should be used for new starters and leavers? Can I use a P45 tax code from a previous tax year? How should payments on leaving employment be taxed? 

PAYE: Starter checklist new employee 2021-22
Freeview PAYE starter checklist. Use this form if you are taking on a new employee

External link

OTS evaluation paper on improvements to the operation of the PAYE system