Chapter 6 - Moving employers to an electronic environment
6.1 This document has canvassed a number of proposed changes to the way Inland Revenue administers the PAYE system. The emphasis would be on moving away from current paper-based systems to greater use of electronic interactions with taxpayers or their tax service providers. This chapter looks how the PAYE changes could make it easier for employers to meet their obligations by interacting electronically with Inland Revenue. Similar changes could be made to other parts of the tax system in the future.
6.2 As well as an electronic PAYE system, further tax forms and booklets could be provided electronically.
6.3 A possible first step would be to more closely integrate payroll systems and reporting processes so PAYE information is provided automatically by software to Inland Revenue so employers would not need to log on to ir-File and manually upload the employer monthly schedule each month.
6.4 Inland Revenue systems could potentially provide information to employers’ software to help calculate correct deductions. For example, for a new employee, the employer would be advised of the employee’s correct tax code, recognising any student loan and child support obligations. Employees would be able to update their own tax code online when their circumstances change, and updates would be automatically forwarded to the employer’s payroll software. Inland Revenue’s research indicates many employers prefer not to get involved in their employees’ private lives; this proposal would reduce such intervention.
6.5 The ease of transferring information means software could provide PAYE information to Inland Revenue each pay-day, for example, rather than by the 20th of the following month as now happens for most small employers. The current PAYE payment dates would remain but would be removed when simply providing information. The PAYE system could also provide more timely information on an employee’s tax code declaration, to check that the correct amount of PAYE, child support and student loans is being deducted.
6.6 It is acknowledged that many small employers are happy with their current manual processes and sending a paper-based employer monthly schedule to Inland Revenue. However it is also known that they want greater certainty and quicker service from Inland Revenue. To achieve this, Inland Revenue needs to move away from paper-based processes to free up resources to provide better service. In turn this will require small employers to change from paper-based systems despite some not wanting to do so.
Mika runs a fishing and outdoor supplies shop, and employs Rodger as his assistant. Rodger has two children to two different women and is liable for child support for one of them. Mika already deducts child support from Rodger's pay as per Inland Revenue's instructions. Following the birth of Rodger's second child, Inland Revenue sends Mika a letter with instructions to deduct a new amount from Rodger's pay. Mika now has to make sure he deducts the new amount correctly from Rodger’s next pay, updates his payroll system and makes sure his employer monthly statement reflects the new amount.
Mika’s payroll and accounting software is integrated with Inland Revenue’s systems and can calculate Rodger’s deductions automatically. Mika does not need to know about Rodger’s child support liabilities or any other details about his personal circumstances, as Rodger will have his own personalised and secure area on the Inland Revenue website where his personal information is stored and can be updated. When Rodger updates his details (for example, adding a dependant) in his individual area on the Inland Revenue website, Mika’s software updates automatically and calculates any new deductions.
6.7 An electronic environment would give employers a range of choices. Some may choose to move to a software payroll package to automate their payroll and reporting processes. Some may choose to use a payroll bureau. Inland Revenue would need to provide some form of electronic service to help very small employers. Submissions on what this service should be and how it should be targeted are welcomed. For example, should Inland Revenue provide a simple software package or an online web-space?
6.8 In proposing these reforms the Government is also aware of limits to what can be achieved within certain timeframes and the need to manage the risks associated with these proposals. The work to support employers would also have to be done within available Government funding.
Questions for submitters
Submissions on any of the issues outlined in this chapter are welcomed, including:
- Your views on the trade-off between continuing the existing paper-based PAYE system and moving to an electronic PAYE environment which provides better services but requires employers to change their PAYE systems to gain these benefits.
- Would it be acceptable to make electronic filing mandatory for all employers?
- What type of incentives should be considered to move employers towards electronic filing?
- Do you have ideas on how Inland Revenue could support employers who do not file electronically?
- What do you think about your payroll and accounting software managing your deductions by getting information on your employees from Inland Revenue?
- Do you think these proposals would reduce compliance costs for employers?
- What electronic services should be provided by Inland Revenue and for whom?