Reform of the PAYE system

The Government is consulting on the reform of the PAYE system. It is introducing "real time information", a scheme that will enable HM Revenue and Customs (HMRC) to collect information about tax and other deductions each time an employer pays its employees. 

Real time information will reform the PAYE system. Instead of requiring employers to make a return to HMRC at the end of each year, it will collect information about tax and other deductions automatically each time an employer pays its employees. The Government's objective is that the employer will provide details of net payments and the calculation of deductions to HMRC as part of the payment process, for example when it pays employees by BACS. 

Real time information will enable HMRC to make timely adjustments to tax codes so that the correct tax is paid in the relevant tax year. It should minimise the administrative tasks employers are required to perform. It will enable HMRC to check that an employer is paying the correct amount to it at the time it makes a payment, so that HMRC can take prompt debt collection action. 

Although the Government has already taken the decision to introduce real time information, it is consulting on certain aspects of the operation of the scheme, including:

• the information that employers will be required to submit to HMRC at the same time as making payments; 
• how payments to HMRC will be made and how often;
• the transition process to the new system;
• the management process for employees joining and leaving an organisation; and
• whether or not real time information should apply in the same way to small employers. 

The closing date for responses is 28 February 2011. 

• Improving the collection of PAYE: Collecting real time information The consultation, which seeks views on the proposed real time information procedure, is available on the HMRC website. 

Also

Frequently asked questions from XpertHR on PAYE include:

• What are the duties of the employer regarding leavers and new employees under the PAYE system?
• Under the PAYE system what are an employer's duties at the end of the tax year?
• Can deductions be made from an employee's wages net of tax?

The XpertHR policies and documents section provides a model itemised pay statement, salary contract clause and letter to an employee proposing to change the method used for paying him or her. 

The XpertHR reference manual provides up-to-date guidance on PAYE.