UK Government Wants First Dibs on All Paycheques


It is difficult not to see the government as evil when we see its designated wealth confiscation agency floating proposals for an evolution of payroll tax collection that evinces certain Soviet aspirations.

'Centralised Deductions' is the HM Revenue and Customs (HMRC)'s new great idea: ostensibly in an effort to improve data quality and accuracy, they are now proposing that employers pass on each employee's gross salary to a centralised calculator / tax account at the HMRC, which would then deduct income tax, national insurance contributions, and any student loan repayments, and then pass on the remainder to the employee, with HMRC paying directly into the employee's bank account.

In other words: the employer sends the whole of the employee's paycheque to the government, and the government then pays the employee after biting off everything they want from it.

As reported by CNBC in their article from 20 September:

Currently employers withhold tax and pay the government, providing information at the end of the year, a system know as Pay as You Earn (PAYE). There is no option for those employees to refuse withholding and individually file a tax return at the end of the year.

The problem, as far as HMRC is concerned, is that the present system is outmoded and outdated, not having been changed in 66 years.

The proposal by Her Majesty's Revenue and Customs (HMRC) stresses the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid.

An HMRC discussion paper from July sees the real-time information system as the first step of a two step plan.

If the real-time information plan works, it further proposes that employers hand over employee salaries to the government first.

According to HMRC, this would have a number of advantages, including:

5.11. The Centralised Deductions concept offers significant further benefits for individuals with income subject to PAYE. Most would pay the right amount of tax in year including those with multiple employments, short term employments, students and pensioners and so few would need any end of year adjustment.

5.12. Individuals would no longer need to understand tax codes, which are a means of hiding an individual’s personal circumstances from the employer. As employers would no longer be deducting tax, codes would no longer be needed. Individuals would be able to see a simple calculation showing the personal allowances and reliefs due to them.

5.13. HMRC would be responsible for ensuring deductions were correct and would be responsible for ensuring individuals had access to timely information about them.

5.14. Information about deductions might no longer appear on an employer generated payslip [emphasis added]. To compensate, one option would be to give individuals access to their consolidated tax account which would show how deductions had been calculated. This information could be made available in a number of ways – many would want to view it online but others might prefer alternative means.

5.15. HMRC would, at any time in the year, be able to confirm what deductions had been made and that they were correct or make necessary adjustments.

5.16. There would also be potential to simplify tax for those who have to complete a self-assessment tax return. HMRC would be able to send them self-assessment returns pre-populated with information about employment income and pensions, reducing the time needed to complete the return.

5.17. Recent research by HMRC4 suggests 66 per cent of individuals use their bank when checking whether and how much they have been paid. They would not notice any change under Centralised Deductions.

5.18. Nevertheless, such a reform would require individuals to get used to a new means of dealing with pay issues. They would continue to deal with their employer on questions about amounts and timing of gross payments, statutory payments and third party deductions, but questions about tax and NIC deductions would be the responsibility of HMRC. The handling of cases where the individual had a query about the deductions will be considered very carefully as part of this consultation exercise. Much of the information wanted by individuals in this situation could be provided through self-service, online or elsewhere. But there is potential to add to the administrative burden for both individuals and HMRC if people are unclear about who to contact with a question. This would require careful design to avoid significant additional cost to HMRC or employers.

(Emphases are mine.)

Leaving aside the fact that, as pointed out by George Bull of Baker Tilly in the CNBC article, the HMRC "does not have a good track record of handling large computer systems and has suffered high-profile errors with data"; and leaving aside the fact that the system would be enormous and enormously costly; "[i]f there's a mistake and the HMRC collects too much money, the difficulty of getting it back could be high with repayments of tax taking weeks or months."

Also, as another commentator has already pointed out, such a system would leave people at the mercy of the government: fiscal harassment already being a known government tactic for dealing with troublesome citizens, such level of access to a citizen's money and bank account would make it much easier to use withholding of payment or contrived bureaucratic 'errors' as a retaliatory measure were such a citizen to speak out.

It bears pointing out the date of the report 27 July 2010 - this is after the last general election, which means this is not yet another instance of socialist Labour perfidy but one that must be credited to the -- now apparently even more socialist, notwithstanding cosmetic policy reversals elsewhere -- Conservative-Liberal Democrat coalition government. This is the same government that recently announced a 'ruthless' war on tax evasion, and which is desperate for cash after 13 years of Labour profligacy and a decade during which the welfare state grew by another 40%.

Having seen the top tax bite increased to 50% for those earning above £150,000 ($225,000); and having seen the coming into effect today of the Equality Act (2010), which consolidates and extends 'anti-discrimination' rules and regulations for employers; is it any surprise that both individuals and businesses are leaving the country and relocating themselves and their wealth in places with less voracious tax regimes and less invasive government bureaucracies?

More and more I am considering emigration to Antarctica -- it is a little cold, and perhaps a little Spartan, but at least for now it seems it is still safe.