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Wally
Wally GRM+ Memberand SuperDork
9/21/10 9:28 a.m.

http://www.cnbc.com/id/39265847

UK Proposes All Paychecks Go to the State First

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.

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.

ReverendDexter
ReverendDexter Dork
9/21/10 9:31 a.m.

Mrmmm, excuse me... I didn't receive my paycheck...

Mikey52_1
Mikey52_1 Reader
9/21/10 9:33 a.m.

Ah, the Brits! Adding yet ANOTHER layer of bureaucracy to an overtaxed society...I'm absolutely certain somebody loves this, but were I one of the (possibly) affected workers, I wouldn't be one of them. BAH! What a grand way to screw up a society.

4cylndrfury
4cylndrfury SuperDork
9/21/10 9:33 a.m.

this is why this whole America deally-o got started in the first place - wonder if they remember all that business a few centuries and some change ago?

Giant Purple Snorklewacker
Giant Purple Snorklewacker SuperDork
9/21/10 9:34 a.m.

Duke
Duke SuperDork
9/21/10 9:34 a.m.

Why don't they just cut right to the chase and collect all of everybody's money, and then give you what they think you deserve? It's what they really want anyway - might as well be honest about it.

BoxheadTim
BoxheadTim GRM+ Memberand Dork
9/21/10 9:56 a.m.

I can see that work brilliantly, given the spate of recent problems that HMRC has had in determining the correct tax and tax credits. But they've worked really hard over the past few years to try and place themselves above the law, so I'm not too surprised.

Actually this either isn't this first time this proposal has come up or CNBC is a few months behind the news...

As an aside, they might just be better off to require tax returns from everybody (you only have to file a tax return in the UK if you're a top rate tax payer, are self-employed or have other non-employment income like rental income) but that might actually show how many people are overpaying tax under the current system anyway.

Dr. Hess
Dr. Hess SuperDork
9/21/10 10:10 a.m.

I talked to some UK based divers in the Persian Gulf (shiny happy person of the world) once. They dove on the oil rigs out there. When they got their job, in the UK, to set up their direct deposits for pay, the company asked them "What's your bank and account number? And what name is it in?" Apparently the UK at that time was set up to skirt UK tax laws.

I think they made about U$200/day back in the mid 80's, and the Fillipino diving with them made about $30/day.

Giant Purple Snorklewacker
Giant Purple Snorklewacker SuperDork
9/21/10 10:38 a.m.

UK based guys in the software business I used to work with were paid only $20-40k/yr but got a nice company Benz, apt in London and expensed a ton of other perks because taxes at the time made it impossible to pay them a livable wage (in London) otherwise.

I'd imagine that goes on, its business as usual even if the check goes directly to the state.

aircooled
aircooled SuperDork
9/21/10 11:43 a.m.

One, two, three, four... Hrmm! One, two, (one, two, three, four!)

Let me tell you how it will be; There's one for you, nineteen for me. 'Cause I’m the taxman, Yeah, I’m the taxman.

Should five per cent appear too small, Be thankful I don't take it all. 'Cause I’m the taxman, Yeah, I’m the taxman.

(if you drive a car, car;) - I’ll tax the street; (if you try to sit, sit;) - I’ll tax your seat; (if you get too cold, cold;) - I’ll tax the heat; (if you take a walk, walk;) - I'll tax your feet.

Taxman!

'Cause I’m the taxman, Yeah, I’m the taxman.

Don't ask me what I want it for, (ah-ah, mister Wilson) If you don't want to pay some more. (ah-ah, mister heath) 'Cause I’m the taxman, Yeah, I’m the taxman.

Now my advice for those who die, (taxman) Declare the pennies on your eyes. (taxman) 'Cause I’m the taxman, Yeah, I’m the taxman.

And you're working for no one but me.

Taxman!

Mikey52_1
Mikey52_1 Reader
9/21/10 11:52 a.m.
4cylndrfury wrote: this is why this whole America deally-o got started in the first place - wonder if they remember all that business a few centuries and some change ago?

Aye, I was thinking of this as well. The Brits of that time managed to divest themselves of much of one of the richest landmasses through the unimagined consequences of taxation. And THAT tax was just a wee little thing compared to this proposal.

No, I'd have to say it hasn't been thought completely through...

spitfirebill
spitfirebill Dork
9/21/10 11:53 a.m.

I wonder how many Americans immigrate to England?

Mikey52_1
Mikey52_1 Reader
9/21/10 11:59 a.m.
spitfirebill wrote: I wonder how many Americans immigrate to England?

12...15, maybe? I know of a bunch that've come to this side of the pond, though.

Schmidlap
Schmidlap Reader
9/21/10 12:23 p.m.

I'm bored today, so I actually read the proposal that the CNBC is blowing out of proportion. It's available here if anyone is interested: UK Tax Proposal

In the proposal, nowhere does it say that your company would send your paycheck to the HMRC. What they are proposing is taking advantage of modern computerised payroll system info to make sure you're paying the correct amount of taxes each month, negating the need for filing a tax return at the end of the year. The proposal is "Real Time Information", meaning that every month your employer would forward your pay and deduction info to HMRC who would then calculate your taxes due and send that info back to your employer who would then issue your paycheck. Currently, the employers are responsible for calculating the taxes dues for each employee every month and sending that tax money to HMRC every month on behalf of each employee. At the end of the year, the employer forwards the total pay each employee got and what deductions they are claiming to the HMRC. HMRC then looks at the taxes paid versus what should have been paid and sends out a check or collects more money depending on how far off the total taxes paid were. What they want to do now is adjust the tax you pay every month based on the changes to your pay or deductions every month to minimize the adjustments needed at the end of the year. The biggest discrepancy, they say, is when someone changes jobs and the employers don't calculate things correctly because they don't have the info from the previous employer. If HMRC tells the employer how much to deduct, instead of the employer trying to calculate it, as is done now, that problem should go away. They are just proposing keeping an eye on your tax rate throughout the whole year. They are not collecting your paycheck and then cutting you a check.

The scary part is that they are trying to hide how much tax you actually pay. From the article: "Information about deductions might no longer appear on an employer generated payslip. To compensate, one option would be to give individuals access to their consolidated tax account which would show how deductions had been calculated." So instead of looking at your paycheck every month and seeing that half goes to the government, now you'll just get your paycheck and have to log into an account to see that the government is taking half your paycheck.

Bob

aircooled
aircooled SuperDork
9/21/10 12:57 p.m.

Come on now Bob, don't let the facts get in the way of a perfectly good story.

Giant Purple Snorklewacker
Giant Purple Snorklewacker SuperDork
9/21/10 1:02 p.m.

'Cmon Bob. It was on the internet. That makes it true.

Otto_Maddox
Otto_Maddox Reader
9/21/10 1:15 p.m.

But but but...

I was just getting my dander up. Now what the heck am I supposed to with my upward dander?

Streetwiseguy
Streetwiseguy HalfDork
9/21/10 6:45 p.m.
Schmidlap wrote: . The scary part is that they are trying to hide how much tax you actually pay. From the article: "Information about deductions might no longer appear on an employer generated payslip. To compensate, one option would be to give individuals access to their consolidated tax account which would show how deductions had been calculated." So instead of looking at your paycheck every month and seeing that half goes to the government, now you'll just get your paycheck and have to log into an account to see that the government is taking half your paycheck. Bob

They have been doing that with the VAT for years. Its built in to the price of everything. its also one reason why I always make sure any invoices I write have both sales taxes prominently displayed.

mpolans
mpolans New Reader
9/22/10 9:40 a.m.
Schmidlap wrote: I'm bored today, so I actually read the proposal that the CNBC is blowing out of proportion. It's available here if anyone is interested: UK Tax Proposal In the proposal, nowhere does it say that your company would send your paycheck to the HMRC. What they are proposing is taking advantage of modern computerised payroll system info to make sure you're paying the correct amount of taxes each month, negating the need for filing a tax return at the end of the year. The proposal is "Real Time Information", meaning that every month your employer would forward your pay and deduction info to HMRC who would then calculate your taxes due and send that info back to your employer who would then issue your paycheck. Currently, the employers are responsible for calculating the taxes dues for each employee every month and sending that tax money to HMRC every month on behalf of each employee. At the end of the year, the employer forwards the total pay each employee got and what deductions they are claiming to the HMRC. HMRC then looks at the taxes paid versus what should have been paid and sends out a check or collects more money depending on how far off the total taxes paid were. What they want to do now is adjust the tax you pay every month based on the changes to your pay or deductions every month to minimize the adjustments needed at the end of the year. The biggest discrepancy, they say, is when someone changes jobs and the employers don't calculate things correctly because they don't have the info from the previous employer. If HMRC tells the employer how much to deduct, instead of the employer trying to calculate it, as is done now, that problem should go away. They are just proposing keeping an eye on your tax rate throughout the whole year. They are not collecting your paycheck and then cutting you a check. The scary part is that they are trying to hide how much tax you actually pay. From the article: "Information about deductions might no longer appear on an employer generated payslip. To compensate, one option would be to give individuals access to their consolidated tax account which would show how deductions had been calculated." So instead of looking at your paycheck every month and seeing that half goes to the government, now you'll just get your paycheck and have to log into an account to see that the government is taking half your paycheck. Bob

Still problematic, because you're relying on a large government bureacracy to perform the calculations correctly. If there's a screw up, you're no longer talking to your local employer to fix your payroll deductions, rather, you're talking to a government bureaucracy with all the red tape and inefficiency that is inherent in such bodies. If your pay gets screwed up, who knows how long it could take to unscrew the situation. Sorry, but if anyone is going to be potentially underpaid, I think the government is in a MUCH better position to bear the risk of underpayment vs. a family who in these tough economic times might be living paycheck to paycheck.

This doesn't even begin to take into account the costs of setting up a bureaucracy to deal with the calculations and inevitable appeals when things do get screwed up.

This is a bad idea.

madmallard
madmallard New Reader
9/22/10 10:47 a.m.

What troubles me is that in both of these articles, the protests don't even touch on there being some kind of ethical problem with increasing the power of a witholding system, which is exactly what the net result would be in order to "improve efficiency" or whatever.

Doesn't it upset people that the working presumption is that the government gets very first crack on the fruits of your labor even before you do? I have an ethical problem with the witholding system, but I'm troubled that more of other people dont.

nutherjrfan
nutherjrfan HalfDork
9/22/10 12:03 p.m.

I kinda like how you can contact the IRS for advice on your taxes, but they aren't liable for giving you the wrong advice!

pilotbraden
pilotbraden Reader
9/22/10 12:22 p.m.

The tax laws would be very different if there was not witholding.

madmallard
madmallard New Reader
9/22/10 12:26 p.m.

There weren't witholding before the wars, yet income taxes still got paid.

barrowcadbury
barrowcadbury New Reader
9/22/10 1:02 p.m.

When I read the title of this thread, I was expecting zombie content :D

914Driver
914Driver SuperDork
9/22/10 2:24 p.m.

"This is perhaps the assembly of the most intelligence ever to gather at one time in the White House with the exception of when Thomas Jefferson dined alone."

John F. Kennedy -

When we get piled upon one another in large cities, as in Europe, We shall become as corrupt as Europe.

Thomas Jefferson -

The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.

Thomas Jefferson -

It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.

Thomas Jefferson -

I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the Pretense of taking care of them.

Thomas Jefferson -

My reading of history convinces me that most bad government results from too much Government.

Thomas Jefferson -

No free man shall ever be debarred the use of arms.

Thomas Jefferson -

The strongest reason for the People to retain the right to keep and bear arms Is, as a last resort, to protect themselves against tyranny in government.

Thomas Jefferson -

The tree of liberty must be refreshed from time to time with the blood of Patriots and tyrants.

Thomas Jefferson -

To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.

Thomas Jefferson

Thomas Jefferson said in 1802: 'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - - until their children wake-up homeless on the continent their fathers conquered.'

Hmmmmmmm.

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