Following the Budget, a consultation with aims to modernise and simplify a number of aspects of the tax system was launched, which includes possible ways of improving the Pay As You Earn (PAYE) process.

The Government’s objective is to speed up the flow of information which feeds into PAYE coding notices, and to digitalise services to improve the efficiency of this system, which encompasses around 46 million individuals.

The main issue identified by the consultation is that PAYE codes often fail to keep pace with changes in employees’ circumstances – for instance starting or leaving a job, or when new benefits in kind or employment expenses begin or end. These issues are far more common now than when PAYE was introduced in the 1940’s due increased employee mobility and the number of people who have more than one job.

HMRC is already working on ways to make it easier for employees to update their tax codes when their circumstances change, making use of digital services to allow people to ‘self-serve’ whenever suits them. However, HMRC also recognises that it has a role to play in helping employees better understand their tax code and the effect any changes to it can have on their net pay.

The consultation asks for ideas on how to improve the flow of data between employees, employers and HMRC so that tax codes can reflect employees’ circumstances in real time, or at least closer to it. This could be through the use of new technologies or better use of data, whilst remembering the need to maintain information security standards.

More ambitiously, the Government is also looking for views on whether the system of tax codes is outdated and could be replaced with a faster, more efficient new system.

The ATT is preparing a response to the consultation, which closes on 7 June.  Feedback from readers on improvements or potential replacements to the PAYE system will be very welcome – please contact us by 26 May if there’s anything you’d like us to consider for our response.

 

This article reflects the position at the date of publication (9 May 2023). If you are reading this at a later date you are advised to check that that position has not changed in the time since.  We regularly publish articles on a range of tax and wider topical issues which affect employers. If you wish to subscribe to our monthly Employer Focus e-newsletter, please contact us.