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The Office of Tax Simplification (OTS) has called for a new review of PAYE, to look at areas where the inputs from employers do not work well and how they are processed by HMRC.
OTS has issued a report into small business taxation problems and called on the government to simplify and streamline the PAYE and RTI system.
The UK’s PAYE system is the UK’s major tax collection system. It brings in about 40 per cent of total tax receipts – some £200 billion. It has been transformed over the last decade, with the introduction of an integrated national system and the provision of real time information by employers.
OTS pointed out that PAYE system problems lead to significant costs for businesses, agents, employees and HMRC itself.
For example, there are around 350,000 duplicate employment records, and around 5 per cent of returns are received late. According to OTS, the current system is also failing at adequately handling the fluidity of the modern workplace.
“It is time for a new review of PAYE, to look at areas where the inputs from employers do not work well and how they are processed by HMRC to update tax codes and the new personal tax accounts. The review needs to update PAYE for modern working patterns,” Bill Dodwell, OTS tax director, said.
HMRC’s data shows that over 70 per cent of small businesses use a tax agent to help them with their tax compliance. However, HMRC does not – as yet – provide tax agents with access to the same information as their clients or enable them to carry out a very wide range of tax transactions for them.
OTS judged that this costs everyone time and money.
“HMRC could do much more to leverage the support agents can bring in making the tax system work for millions of taxpayers. Ensuring that the valuable role of agents is built in to all new or redesigned systems would go a long way to support small businesses – and support HMRC too,” said Mr Dodwell.
Other recommendations proposed by OTS look at simplifying corporation tax reporting in the first period when a company is incorporated and setting a more strategic approach to tax administration and system change.
“Small businesses – of which there are millions – are a core concern and area of interest for the OTS, so it is pleasing that this is the subject of the first OTS report published since I became chair,” explained OTS chairman Kathryn Cearns, OBE.
“The long-standing concerns highlighted, about businesses avoiding mistakes as they get going, the workings of the PAYE system and the priority given to the role of agents, are not easy things to improve quickly. So, it’s all the more important that the OTS continues to highlight these issues.”