Policy News Journal - 2012-13

CENTRALISED DEDUCTIONS SUGGESTED BY 'PAYE AT THE CROSSROADS' REPORT

12 July 2012

The CIPP strongly opposes a move to Centralised Deductions, as suggested by the PAYE at the Crossroads report published by the All-Party Parliamentary Taxation Group this morning.

The All-Party Parliamentary Taxation Group has published its third report in a series on the operation of PAYE. The report examines the forthcoming introduction of RTI and its link with Universal Credits, and considers the future for PAYE in the 21st century.

The report examines the forthcoming introduction of RTI and its link with Universal Credits, and considers the future for PAYE in the 21st century.

The report is critical of the tight timescale for introducing such a major change to the way PAYE is reported suggesting that it has been driven by the policy deadline for Universal Credits rather than business needs. The report goes on to suggest that if HMRC were to delay the migration of RTI until mid 2015, the effect on Universal Credits would not be substantial. However, whilst accepting that there are negative aspects of the PAYE system, the report rejects suggestions that the PAYE system is broken and that its reformation is a matter of urgency. It suggests that RTI is simply the beginning of a long process of modernisation. HMRC’s original intention when introducing RTI was that real time data would be received through its Strategic Solution of employers submitting all data through the Bacs channel. When it became evident that this could not be done within the timescale HMRC introduced an Interim Solution, bringing with it an extension to EDI until 2016. Though welcome, the Interim Solution does not guarantee accurate real time data. However, HMRC is still working towards its preferred Strategic Solution which does bring that guarantee. Yet the report goes further, stating that this does not take modernisation far enough, and that the biggest “Cross – Governmental Prize” only comes with the introduction of Centralised Deductions. Under Centralised Deductions employers would pay their employees in gross and have the PAYE calculation performed by a centralised calculator. The report states that this would bring two extra features:  A central feed of real time data;  Automatic reconciliation between deducted PAYE and benefit entitlement. The report’s author, Jamie Black, believes that Centralised Deductions would significantly reduce the administrative burden on business and would bring benefits to a number of government departments. When presenting the report this morning, Jamie Black commented that this was a long term vision and should not be rushed. However, the report goes on to conclude that PAYE is at a crossroads, and government has two choices, either electing to push forward with reform, starting with the Strategic Solution and ending with Centralised Deductions; or move backwards, scaling back RTI to a form of periodic filing. The CIPP strongly opposes a move to Centralised Deductions, believing that it would be wiser to evaluate the effects that introducing RTI, and the benefits that brings first before considering any more radical changes. The report recommends that the Cabinet Office establishes a working group to look at the benefits of both the Strategic Solution and Centralised Deductions across government. The CIPP welcomes this, as the costs needed to bring about such a radical move need to be

CIPP Policy News Journal

12/04/2013, Page 189 of 362

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