The Revenue, computers and the payroll

As we learn that many tax calculations under the Pay as you earn scheme have been wrong for years, the Treasury is busy consulting on taking over the task of running the payroll for every employer in the country.

I jest not. That is the bottom line of their consultation. Apparently, because so many PAYE accounts have been charged the wrong amounts for years, the answer is for the Revenue to play a much bigger role in sorting out your pay.

The Consultation paper suggest a three stage approach. In the first stage employers will have to supply the Revenue with weekly or monthly details of all pay and tax charged, so the Revenue can see if a new code number or basis for the calculation is needed. Smaller companies that do not have the necessary computer programmes will be able to seek assistance of an unspecified amount to change their systems so they can talk directly to the Revenue to comply.

In the second phase, the Revenue will take on the task of working out the tax for every employee, harnessing the now assured mutual working between the Revenue’s computer and each employer’s computer.

The final denouement comes with the Revenue effectively running the payroll for each firm, charity and state institution.

I am sure the Treasury would like to hear from you if you think this is a good idea, and you might like to tell them if you think it a bad idea. I have already sent in my comments. I am not sure I should reproduce them here.

You might like to ask amongst other things how this would ensure accurate tax, as the employer does not know the details of an individual’s savings or casual income, and how much risk there would be in having such a huge national computer system to handle so much money each week and month.

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29 Comments

  1. Julian
    Posted September 9, 2010 at 9:26 am | Permalink

    What is as worrying is that the Treasury has the staff to work up such a scheme and propose it. It is quite obviously going to be completely unacceptable to the current government and the public at large. Do they have so many people sitting around that they can affford the time and money for this?

    Of course, another reason might be to deflect attention from their other proposals. i.e. Get everyone worked up by "Centralised Deductions" and all the other ideas slip through without comment or response. Or am I being too cynical?

    Please can you let the Chancellor know that if he has staff in the Treasury free to make proposals like this, they should perhaps be first in line when the axe swings.

  2. Nick
    Posted September 9, 2010 at 9:49 am | Permalink

    Where is the link for telling them?

    The mess is because of the tax law mess. It's too complicated.

    Who's to blame for that?

    Politicians.

    • Simon
      Posted September 9, 2010 at 12:46 pm | Permalink

      Completely agree with you Nick , the problem is it's too complicated .

      The solution is to simplify it , not try to manage the complexity .

      There is also the issue of tax "initiatives" with a short term life (before they are replaced by new "initiatives") but long term implications for tax calculations even 50 years into the future .

      I can't remember any off hand but do remember recognising some at the time , and the last govt with all it's gimmicks was a particularly bad offender . They were providing piddling amounts to a tiny minority of the population ; what might be described as "exceptions" .
      The sums of money involved were clearly less than the administrative costs .

  3. a-tracy
    Posted September 9, 2010 at 9:53 am | Permalink

    "because so many PAYE accounts have been charged the wrong amounts for years" ? Everybody has an annual return created at the end of each financial year by their employer and sent to the government, recently sent electronically to reduce data input requirements, so how have so many accounts been charged wrong for YEARS when they check them every year, and if they can't check someones account once per year how will they check them weekly or monthly? I genuinely don't understand. The majority of PAYE accounts are standard basic code L with no benefits in kind and the others are notified to the employer annually by the tax office.

  4. Mark
    Posted September 9, 2010 at 9:57 am | Permalink

    "I'm from the government and I'm here to help." The ten most terrifying words in the English language.

    Given the run-ins with tax offices over incorrect assessments I've had over the years because of the incompetence of their staff there is no way they could be trusted. We are told that there are 18 million incorrect assessments from former years still to be resolved. Of course, this assumes that a tax office would remain benign. The ability for it to "fine" people first and get them to demonstrate the levy was wrong after is truly terrifying – the Orwellian state in full flow.

  5. Brian Tomkinson
    Posted September 9, 2010 at 10:00 am | Permalink

    Isn't it astonishing that, with all the public money spent and all the "improvements" in computerisation, tasks which seemed to be accomplished without too much difficulty previously now seem to be impossible to achieve? We are now told that the answer is to spend even more and use even "bigger and better" computer systems. I thought we were going to have less state interference, not more.

  6. JimF
    Posted September 9, 2010 at 10:13 am | Permalink

    Just as many here suspect, we are still on a slow path to Communism under this Government. The Government already tells me what I have to pay employees as a minimum, what they are allowed to do, and their maximum working hours. It sets the pay rates by reference to public sector competition. How long before we are told what prices we can charge, and then any profits we make are sequestered to be investigated and for the appropriate tax to be deducted?

    If it is such a worry that PAYE isn't working properly, why not issue every person of working age with a Tax return as in the US? Oh, I forgot, half our population either can't speak English or wouldn't have the wit to fill it in, so it all falls back on their employer again, doesn't it?

    Again, when the choice between personal responsibility or the nanny state and Communism has to be made, Big Government including yours will choose the latter.

  7. Brigham
    Posted September 9, 2010 at 10:18 am | Permalink

    If the past is anything to go by, this is the worst idea yet. Civil servants record on accuracy is worst than abysmal, and the time it takes them to put their mistakes right, might mean people with no savings get no money at all, and having to borrow at, no doubt. exorbitant interest rates just to live. The other point that springs to mind, is, what about "smaller government"

  8. waramess
    Posted September 9, 2010 at 10:34 am | Permalink

    What an excellent idea. Since they are now the principal recipients of my income they should receive it first and then pass on any remaining to me.

    Better still, they might consider buying the groceries first, before passing it on, so saving me the trouble

  9. Rob
    Posted September 9, 2010 at 10:50 am | Permalink

    The perfect nightmare of incompetence, invasion of privacy, potential loss of personal data, appalling problems correcting mistakes and the extension of big brother nany state. I despair of this country. Nobody, even the Conservative Party, seems to be able to stop the slide into an all powerful state controlling our lives and thoughts.
    I know several business people that are actively seeking to emigrate and now I'm one of them.

  10. Jonathan
    Posted September 9, 2010 at 11:00 am | Permalink

    Sending the revenue the data more frequently won't help that much as they made the mistakes in the first place with the less frequent data; due to the complexity of the tax system it will still take them a couple of years to realise any mistakes. What we need straight away is a root and branch reform of the tax system, simplification is also the key to make sure people can't avoid paying what they should.
    Also as a small business owner it grates that we'll have extra bureaucracy to cope with thus adding extra costs. Not exactly the way to help the economy out of recession.

  11. Jonathan
    Posted September 9, 2010 at 11:08 am | Permalink

    HMRC will argue that the reason the PAYE codes were wrong is because they they didn't know how much the tax-payer earned from each income source until the end of year returns came in some time after the year end, and that this proposal will give them the information they need to calculate the codes accurately.

    There is some logic in this argument, but I just don't think a large government computer calculating everyone's payroll in the country is going to work.

  12. CDR
    Posted September 9, 2010 at 11:10 am | Permalink

    I think it's obvious that this is a move to totally control everyone's PAYE income from a central point; for the benefit of administrators, of course, certainly not the worker. Before someone steps in and says it's a good idea, it might be worth pointing out that it'll mean no-one receives a payslip any more. So, how will you know whether the correct deductions have been made? Would you trust the tax office to get all your deductions right? No, I thought not.

    So the only way to check them will be to phone HMRC….sure. One of those automated jobs that asks you to press 1 for this and 2 for that, and then tells you all lines are engaged with 30 million other callers, please ring back later. I am sure it will be a great success.
    One also has to ask; if the tax office controls everyone's monthly pay, what other scenarios will it all lead to?

  13. THE ESSEX GIRLS
    Posted September 9, 2010 at 11:12 am | Permalink

    We roped in our former tax office Essex ‘sister’ last night to discuss the latest reported fiasco at HMRC.
    She is hardly shocked as it was generally known way before the election and left for the new government to announce and attempt to resolve.
    Alistair Darling as good as admitted this on yesterday’s Daily Politics.

    Our sister Helen has long predicted this as she saw much genuine expertise being off-loaded with redundancies and early retirements in recent years and the misguided view that ‘The New Computer System will sort out Everything!’ She confirms that Michael Fallon hits the mark in identifying the change from single, long-term employment as a root cause requiring a re-think of the PAYE system. Surely for £350m we could have got this?

    CONTINUED BELOW

  14. THE ESSEX GIRLS
    Posted September 9, 2010 at 11:17 am | Permalink

    CONTINUED FROM ABOVE

    Another major problem continues to be the millions of ‘temporary’ NI numbers in the system, many of which are used by people with a ‘permanent’ number too. Labour knew the system has been corrupted beyond repair which made them keen to start again with the enormously expensive ID card strategy.
    Internal expertise would have been a far better option for the taxpayer in every respect to the continuous army of expensive outside consultants with vested interests.

    Incidentally do parents know that their children with low-paying jobs (or indeed anyone with that employment pattern) can split their tax-free personal allowance between the different sources of income so they get full entitlement from each?
    (This writer didn't!)

    • Anon
      Posted September 9, 2010 at 8:26 pm | Permalink

      Years ago when I actually worked in the Revenue when we got NI enquires these were deemed low priority work and frankly were quite often quietly binned. That is one reason there are so many 'ghosts' in the system. I also recall at end of year we were instructed by local management to just clear every record where there were no details from the employer. The reason he did this was due to his bonus – he was an odious man. Some of us refused, it caused quite a fuss !! But nevertheless we sent out the required enquiry to the employer. Of course the vast majority of the staff had left their employment ! Had they been left, as we were instructed to do, it was further messing up the system. One guy did a review of sub-source directors and he discovered one such had died in 1963 ! The record was still there. Need on go on ?

      The bottom line is the system is a mess. Tax law is far too complicated and is in desperate need of radical reform and simplification. I also think that many of the staff are simply not up to the job and the whole department could do with reform and a good dose of privatisation.

  15. forthurst
    Posted September 9, 2010 at 12:07 pm | Permalink

    The purpose of PAYE is to enable the government to collect money regularly for essential spending such as for wars of choice and paying aliens to overpopulate our island and subsidiarily to avoid confronting taxpayers with large bills at the end of year for which they may not have savings. The problem arises when the Revenue relies solely on PAYE for a taxpayer without an end of year tax return which would resolve the miscalculations automatically (in theory). The solution would appear to be for the Revenue to broaden the scope of the annual tax return to include for example anyone who has more than one source of income in a tax year; since income tax is calculated on a annual basis, it is simply not sensible to try to reconcile it with total accuracy on a weekly basis. It would be helpful though if Tax codes represented the actual free pay and the actual taxpayer group categorisation so that individuals and employees could more easily spot obvious errors by the Revenue.

    As to stage three, I'm not certain what is intended here; I am assuming that the employer would still calculate the build up to Gross (the most complex operation for many employers) and report that to the Revenue via a computer link, the Revenue would then calculate the NHI and tax deductions (or additions) for each employee, notify to the employer's computer and proceed to deduct the total NHI and tax from the employer's bank account by direct Debit, the employer would then apply post tax deductions to the taxpayer's net wages and print out a payslip accordingly, paying the final net pay into the employee's bank or by cash; if it was any more complex than this it wouldn't work at all, but in any case it would cost more to operate overall and it would involve more opportunities for administrative cock-ups since it involves more time critical interfaces which have to be up and working and up to date with hundreds of thousands of computers). I can just imagine the salivating of the hardware and IT systems contractors who presumably put the Traesury up to this halfbaked scheme.

  16. Sir Graphus
    Posted September 9, 2010 at 12:10 pm | Permalink

    Any solution proposed by the Public Sector, always involves an expansion of the Public Sector.

    My blood ran cold when I read this.

  17. Geoff M
    Posted September 9, 2010 at 1:31 pm | Permalink

    I'm betting that Osborne and Cameron will go for this.

    Incidentally Mr Redwood, why no comment on Osborne's giving in completely to the EU regulation of the City?

  18. John
    Posted September 9, 2010 at 2:18 pm | Permalink

    One more step in redistribution of wealth. The State to decide how much money each soul shall be given at the end of the week or month.

    Next all property to be taken into State ownership for reallocation.

    So we see the continuity of government, out New labour Socialism; in LibCon Socialism.

    The end game is to transfer all to the Brussels elite whence a politically lobotomised People of Europe will have their daily tranquillising medication dispensed, whilst their feudal masters eat, drink and make merry.

  19. anextoryvoter
    Posted September 9, 2010 at 2:19 pm | Permalink

    Giving HMRC complete control will do nothing to improve their accuracy. It merely removes the employer from the loop and more importantly the qualified accountants who often calculate tax on behalf of employers. These accountants are the only independent source of advice for employees unable to calculate or to question their own taxes and allowing HMRC complete control merely removes a qualified scrutineer from the tax system. No doubt, this is the real reasonfor the suggestion from HMRC, that or possibly a case of creating "jobs for the boys"
    Apart from all that, it is tantamount to slavery. I for one will not tolerate it and will cease employed work and form my own company immediately should any such system be introduced.
    Surely, it is time for the relevant minister to call the head of HMRC in and issue a dressing down. We are a nation of free men and not slaves to a totalitarian regime, those involved in suggesting and flying this kite need their fortunes told to them, NOW.

  20. Essex man
    Posted September 9, 2010 at 2:31 pm | Permalink

    Big Brother would be proud of this scheme. No one would get paid until the government says so. Don't toe the line, protest about what the government is doing, fall foul of the thought police aka discrimination industry or the health and safety Stazi and your payments are stopped until you mend your ways. Perfect control and no need of a mass army to keep the proles in order.

  21. Chalcedon
    Posted September 9, 2010 at 3:34 pm | Permalink

    Dear Mr. Redwood,

    Absolutely no!! How dare they even think this idea. It's my money, not theirs. That they take a proportion of my earnings before I even see it under PAYE is tantamount to legal robbery; I most certainly object to them wanting to transfer some of my money back to me. They will screw up. they will leave thousands with zero money for a month and it will reqire legal means to get redress and that will be slow.

  22. DiscoveredJoys
    Posted September 9, 2010 at 6:31 pm | Permalink

    And how would the HMRC know that John Smith's pay this month should be increased by 4 hours overtime at time and a half, 5 hours work on a Bank Holiday at a special 'Bank Holiday Rate', an annual performance bonus, 10 hours allowance for handling petro-jelly cables, on call allowance, plus two on call attendances?

    Or that Freda Jones achieved her piecework targets on the widget production line, but half-way through the month went onto maternity leave?

    I've managed a pay group and I've service managed a payroll computer system for a large firm. It's not easy and individual cases often 'go wrong' for various reasons. Could the HMRC cope with 30 million payees, all on different terms and conditions? Would they be as easy to access as your own firm's pay group? Ha ha ha ha, bonk. (Laughed my head off)

  23. David in Kent
    Posted September 9, 2010 at 9:14 pm | Permalink

    The great thing about the Treasury writing a proposal like this is that it clearly identifies for us the individuals who can safely lose their jobs without harming service to the public. We can start with the individuals who authorised publication of this proposal.
    Unless of course it was a more subtle exercise than that, Maybe it was intended to to put forward such a stupid proposal so that we would welcome a slightly less stupid one but along the same lines.

  24. Dan H.
    Posted September 10, 2010 at 7:15 pm | Permalink

    OK, the start position here is that the Revenue have a system which is too complicated for them to operate successfully. What they are proposing is that we floodthem with information, and effectively give them even more scope for misunderstanding our situation, and getting things wrong. All this would not be so bad were the Revenue legally responsible for wrong advice; we the tax-payers are subject to all manner of legal sanction if we make mistakes, yet the Revenue can (and does) make numerous mistakes without those whom it extorts money from having any comeback at all.

    So, if the Revenue want to pursue these plans, I suggest a compromise. They can have their extra information and control but in return they become legally responsible for advice given and mistakes made. Given how utterly incompetent many of these civil servants are, I would predict that should this legal accountability become law, carnage in the ranks of the civil service would ensue and the tax-take would drop sharply until the Government simplified the tax system dramatically.

  25. Derek Buxton
    Posted September 11, 2010 at 8:05 pm | Permalink

    This problem is not new, it has gone on for years. I retired twelve years ago and during my working life, despite their having all details of my salary and expenses every year, with all the bumf associated therewith (unlike MPs, we had to provide receipts), at the next years coding (joke) I owed them money. It was patently a scam, under a easy tax "conservative" regime it was about £100, under a socialist one it was around £200.
    What is now proposed is an absolute disgrace, come back Stalin!

  26. EJT
    Posted September 13, 2010 at 1:50 pm | Permalink

    Is it (more than) possible that part of the problem is the increasing complexity of the tax system ? I have had one accountant tell me that the manual tripled in size under Labour, and another tell me that no-one understands it any more.

    Add to this a reduction in front line staff at the Revenue ( How and why ? Did their budget go down, or is it being frittered away on something else ? And, not totally OT in terms as an example of de-focus and mismanagement of government functions – try getting an answer from the Revenue's VAT telephone helpline ! Until recently a very useful resource for SME's wanting to get their returns right. All the funding blown on the new on-line system !? )

  27. random noise
    Posted September 13, 2010 at 6:46 pm | Permalink

    Any company accountant could tell you who pays PAYE. It is his customers, not the company and not its employees. Ultimately, at the end of the supply chain it is you and me that support all commercial enterprise. And it is we consumers that also bear the entire burden of taxation when we spend our cash. It is the taxes incurred against production, hidden in consumer prices, that are the most insidious, because they are not apparent to the consumer and widely considered to be taxes paid by someone else. These include the payroll deductions: PAYE. It is no wonder governments continue to over spend, when their voters are so misled.

    For those working, directly or indirectly, wholly for government, as recipients of taxation, the idea of their contributing to taxation through income tax is absurd. This means that at least a third of all PAYE money just circulates back and forth between government departments and their employees, serving absolutely no purpose, except to perpetuate the myths that their gross income is real income and working people really do pay their taxes through PAYE, even those in government employ.

    The real answer to this debacle is to abolish all taxes except VAT, which would reveal explicitly to consumers the real level of taxation that we endure. It would also need us to recognise that our true earnings are our current take home pay.

    Such a change would massively invigorate entrepreneurial activity and bring a huge influx of foreign capital to enjoy this new business freedom. Our tax revenues would increase from the larger consumption at home of a growing work force.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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