Policy paper

OTS evaluation paper on improvements to the operation of the PAYE system

OTS publishes an update on PAYE aspects of two of its recent reports.

Documents

OTS PAYE evaluation note

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Details

The OTS has published an evaluation paper on improvements to the operation of the PAYE system.

This paper on PAYE is one of four separate notes accompanying the OTS’s everyday tax evaluation paper, providing an update on its 2019 reviews about simplifying everyday tax for smaller businesses and taxation and life events.

While in many cases the PAYE system means employees and pensioners pay their tax with relatively little interaction with HMRC, the PAYE process does not work so smoothly for everyone.

The size and scale of the PAYE system and the number of tax codes being operated by employers, pension providers and payroll agents means that even a small proportion of errors in the system, or with data fed into the system, can affect thousands of taxpayers in relation to common situations such as starting work, changing jobs or taking on additional jobs. This then results in costs to the individual, employers and HMRC in trying to put things right.

The OTS recognises the impact that the COVID-19 pandemic has had on all government work streams, and the necessary diversion of HMRC effort that has been needed. Nevertheless, from the perspective of those outside HMRC there seems little evidence of HMRC planning or prioritisation to address the issues raised.

Key PAYE issues

The OTS considers that the key priority for HMRC and the government in relation to PAYE is to ensure that there is the commitment and funding to sustain continuous improvement and development of the PAYE system and to enable the effective operation of the Single Customer Account in relation to PAYE as well as other areas of tax.

In this regard:

  • the OTS encourages HMRC to provide direction and transparency around their future plans, priorities and work programmes in this area

  • the OTS encourages HMRC to engage with payroll industry and other tax professionals and agents further and more widely to harness the goodwill available to help inform and support positive changes

  • looking specifically at the recommendations in the reports, the OTS would like to see HMRC improve the quality and detail of the PAYE data collected, and the way this is then processed, to deliver better outputs and outcomes for the employer and taxpayer. The focus should be on areas that cause taxpayers the most problems in practice such as those arising in connection with starting work, changing jobs or taking on additional jobs

  • another area, referred to in a number of previous OTS reports, is the potential for improvements to the tax coding system, including further work to improve the explanatory notes around tax coding notices and ways in which taxpayers can in effect change tax codes through their Single Customer Account

  • with PAYE RTI submissions providing HMRC with one of the biggest sources of data, any improvements to the PAYE system will need to align with the ongoing design of the Single Customer Account to ensure that this data can be used to provide taxpayers with clear, accurate and timely information about their tax affairs

Notes for editors

The OTS is the independent adviser to government on tax simplification, challenging tax complexity to help all users of the tax system; it does not implement changes - these are a matter for government and for Parliament.

The OTS works to improve the experience of all who interact with the tax system. It aims to reduce the administrative burden - which is what people encounter in practice - as well as simplifying the rules. Simplification of the technical and administrative aspects of tax are each important, both to taxpayers and HMRC.

The OTS has previously published an evaluation update on its 2017 VAT review in October 2019, an evaluation and stocktake note on its 2017 Corporation Tax review and 2018 Accounting depreciation or capital allowances review in July 2020 and an evaluation paper on its 2018 review on HMRC Guidance in March 2021.

An index of all OTS publications is also available.

Press Enquiries only please contact Julie Gillespie, OTS Press Officer Phone 03000 585028.

Published 24 February 2022