UK Proposes All Paychecks Go to the State First
Published: Monday, 20 Sep 2010 | 7:57 AM ET Text Size By: Robin Knight
CNBC Associate Web Producer
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The UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.


Sharon Lorimer
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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.

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.

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

"The next step could be to use (real-time) information as the basis for centralizing the calculation and deduction of tax," HMRC said in a July discussion paper.

HMRC described the plan as "radical" as it would be a huge change from the current system that has been largely unchanged for 66 years.

Even though the centralized deductions proposal would provide much-needed oversight, there are some major concerns, George Bull, head of Tax at Baker Tilly, told CNBC.com.

"If HMRC has direct access to employees' bank accounts and makes a mistake, people are going to feel very exposed and vulnerable," Bull said.

And the chance of widespread mistakes could be high, according to Bull. HMRC does not have a good track record of handling large computer systems and has suffered high-profile errors with data, he said.

The system would be massive in terms of data management, larger than a recent attempt to centralize the National Health Service's data, which was later scrapped, Bull said.

If 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, he said.

"There has to be some very clear understanding of how quickly repayments were made if there was a mistake," Bull said.

HMRC estimated the potential savings to employers from the introduction of the concept would be about £500 million ($780 million).

But the cost of implementing the new system would be "phenomenal," Bull pointed out.

"It's very clear that the system does need to be modernized… It's outdated, it's outmoded," Emma Boon, campaigner manager at the Tax Payers' Alliance, told CNBC.com.

Boon said that the Tax Payers' Alliance was in favor of simplifying tax collection, but stressed that a new complex computer system would add infrastructure and administration costs at a time when the government is trying to reduce spending.

There is a further concern, according to Bull. The centralized storage of so much data poises a security risk as the system may be open to cyber crime.

As well as security issues, there's a huge issue of transparency, according to Boon.

Boon also questioned HMCR's ability to handle to the role effectively.

The Institute of Directors (IoD), a UK organization created to promote the business agenda of directors and entreprenuers, said in a press release it had major concerns about the proposal to allow employees' pay to be paid directly to HMRC.

The IoD said the shift to a real-time, centralized system could be positive as long as the burden on employers was not increased. But it added that the idea of wages being processed by HMRC was "completely unacceptable."

“This document contains a lot of good ideas. But the idea that HMRC should be trusted with the gross pay of employees is not one of them," Richard Baron, Head of Taxation at the IoD, said in the release.

A spokesperson for Chancellor of the Exchequer George Osborne was not immediately available for comment.

© 2010 CNBC.com

Kilkrazy wrote:However, recent major errors by the Revenue, resulting in the posting of several million letters either claiming more tax or giving refunds, mean that it will be a very unpopular plan with the public.

Kilkrazy wrote:They all have massive mansions in central London, the last thing they want is their money going straight to the government and being dished back out.

Kilkrazy wrote:We haven't been subjects for decades, actually old chap, that is why we don't have a problem with it.

On 1 January 1983, upon the coming into force of the British Nationality Act 1981, every Citizen of the United Kingdom and Colonies became either a British Citizen, British Dependent Territories Citizen or British Overseas Citizen.

The use of the term "British subject" was discontinued for all persons who fell into these categories, or who had a national citizenship of any other part of the Commonwealth. The category of "British subjects" now includes only those people formerly known as "British subjects without citizenship", and no other. In statutes passed before 1 January 1983, however, references to "British subjects" continue to be read as if they referred to "Commonwealth citizens".

British citizens are not British subjects under the 1981 Act. The only circumstance where a person may be both a British subject and British citizen simultaneously is a case where a British subject connected with Ireland (s. 31 of the 1981 Act) acquires British citizenship by naturalisation or registration. In this case only, British subject status is not lost upon acquiring British citizenship.

The status of British subject cannot now be transmitted by descent, and will become extinct when all existing British subjects are dead.

British subjects, other than by those who obtained their status by virtue of a connection to the Republic of Ireland prior to 1949, automatically lose their British subject status on acquiring any other nationality, including British citizenship, under section 35 of the British Nationality Act 1981.

Orlanth wrote:Of course land grabs have nothuing to do with the Queen, and many councils are dodgy and self serving or even are actually serving a non-native *cough* Donald Trump *cough*.

WarOne wrote:

Orlanth wrote:Of course land grabs have nothuing to do with the Queen, and many councils are dodgy and self serving or even are actually serving a non-native *cough* Donald Trump *cough*.

As a fellow America of Donald Trump, I humbly offer him up to England in the hopes his infectious disease of naming things after himself can change the names of some of the more iconic English landmarks, such as the Trump London Tower and the Trump Stonehenge.

sebster wrote:Well, there's a pretty dull argument to be had over the benefits of the tax office better assessing people's PAYE obligations than the employer might, vs the costs of having all that money making two payments. I'm guessing that argument won't actually be had though, instead we'll get some people making crazy complaints about government taking all your money because SOCIALISM!

The Green Git wrote:I'd think the additional power granted over the citizens would be the driving force behind any unpopularity... but then again the British subjects don't seem to have the problem with *BEING* a subject that us Yanks do.

Orlanth wrote:Let me give you a proactical example of that. Compulsory purchase.

WarOne wrote:

Orlanth wrote:Of course land grabs have nothuing to do with the Queen, and many councils are dodgy and self serving or even are actually serving a non-native *cough* Donald Trump *cough*.

As a fellow America of Donald Trump, I humbly offer him up to England in the hopes his infectious disease of naming things after himself can change the names of some of the more iconic English landmarks, such as the Trump London Tower and the Trump Stonehenge.

Kilkrazy wrote:There is already a town called Trumpton, that is enough I think.

Miguelsan wrote:I´m disappointed with you Frazz for the misleading title. It´s not the UK but Her Majesty's Revenue and Customs (HMRC) that as everybody knows with their American cousins (IRS) are the descendants of the cross between the Spanish Inquisition and Chtulhu, always ready to suck our souls.

M.