Tax changes continue: PAYE and child benefit
I have been involved in the world of tax as a tax advisor and tax lecturer for over 25 years, I am still of the opinion that paying tax still remains one of the only certainties in life (death being the other), the regulations however are ever changing and the old maxim applies (from an HMRC view point), ‘ignorance is no excuse for not knowing of the changes and its implications.
Amongst the many planned tax changes there are two that I wish to bring to your attention, one involves the operation of PAYE (Real Time Information), the other involves child benefit (High Income Child Benefit Charge, HICBC). The purpose of this blog is to overview those changes and to strongly recommend planning and preparation for those changes
One of the most significant changes to the administration of PAYE is Real Time Information (RTI). This will change how and when employers and pension providers report information to HMRC. The underlying principle of RTI Under is that employers and pension providers will tell HMRC about tax, National Insurance contributions (NICs) and other deductions when or before the payments are made, instead of the current annual reporting system.
One of the drivers behind RTI was in improving the perceived current inadequacies of tax collection, where it is estimated that approximately £2 billion of tax and NIC is underpaid. Some of the other perceived benefits is to make the PAYE process simpler and less burdensome for employers, reduce costs for HMRC and enable it to deal with non-compliance (such as late payment and debt collection) more effectively; support the payment of Universal Credits; support the introduction of Universal Credits (October 2013). Employers and pension providers will send this information to HMRC Online.
The fundamentals of PAYE will be unchanged, for example, use of codes, employers deducting tax and National Insurance. There were some initial concerns that HMRC wanted to centralise and take over employers payroll function, HMRC have stated that making up to gross and determining tax and NIC liability will remain the domain of employers and payroll professionals.
RTI is not optional and will eventually apply to all employers; its introduction is being phased in, it will be live for medium and large employers (50+employees) from April 2013, smaller employers will be bought into the scheme from October 2013.
The biggest impact on employers will be to ensure that their payroll systems and processes are adequate to enable them to discharge their new obligations, and that they are able to submit the level of information that HMRC will require. The initial consultation document issued in December 2010 listed 102 data items that employers may have to submit on a regular basis, from rate of pay, hours worked, information about seconded overseas employees, pensions etc.
Some annual reporting will still be retained, such as submission of P9Ds, P11Ds and P11Dbs.
The HICBC starts on 7th January 2013 and will affect those in receipt of child benefit where the individual and/or their partner earn over £50,000 per annum. Child benefit started its life as family allowance in 1946, and was one of the three tenents of the welfare state as set out by William Beveridge – the NHS and maintenance of employment being the other two.
We live in different times now, and a great deal of people may not necessarily sympathise with the withdrawal of this benefit from ‘high’ earners and can see the justification in having it means tested. HMRC have already prepared a raft of information about the proposed changes and what to do. There will be a number of people now being dragged into the self assessment system, appropriate records will have to be maintained and there seems to be an erosion of the concept of independent taxation (prior to 6th April 1990 a husband effectively signed his wife’s tax return and she would have to disclose her income to him – but not vice versa).
The easiest way to avoid this is not to claim the benefit, it is still advisable to register for the benefit since an individual’s NIC record can still be credited and thus help preserve the state pension entitlement.
If I was a cynical individual I would say that this is a win-win situation for the government – more people in self assessment and/or no claims made on child benefit – it may not be a good long-term political decision.