PAYE review needed for SMEs, says report

The Office for Tax Simplification (OTS) is urging HM Revenue & Customs to review the Pay-as-you-earn tax (PAYE) system for small businesses.
A report by the OTS said that a review is necessary to make it easier for tax agents to view the data on small business clients, which is held by HMRC. The report also stated that HMRC must consider small businesses when upgrading or developing new IT systems.
A number of small and medium-sized enterprises (SMEs) have criticised the current PAYE system, noting that it is an unnecessarily complex system that lacks cohesion between authorities and tax agents.
The OTS report says that the current PAYE system cannot handle the reality of the modern work environment. If employees hold more than one job or leave a role in the middle of a month, the system fails to cope.
System errors and problems have led to substantial costs for HMRC, as well as for businesses, agents and even employees. Currently, there are 350,000 duplicate employment records, with around 5 per cent of returns being received late.
Bill Dodwell, OTS tax director, said: “Many new businesses are formed without sufficient help and guidance. This can lead to mistakes being made, resulting in substantial costs or penalties as their tax compliance affairs are put in order.
“It is time for a new review of PAYE, to look at areas where the inputs from employers do not work well and how they are processed by HMRC to update tax codes and the new personal tax accounts. The review needs to update PAYE for modern working patterns.”
 

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