What problems do current PAYE processes cause for employees?
Information employers provide to Inland Revenue is used to deliver various social policy functions, such as:
- Working for Families entitlements
- Income-tested benefit entitlements
- Student loan repayments
Prompt and accurate PAYE information is important for these amounts to be calculated accurately. The current system has two limitations:
- PAYE information is aggregated into monthly amounts, which mean it cannot be used to accurately calculate weekly or fortnightly income
- PAYE information is sent to Inland Revenue in the month after payment was made to staff, therefore Inland Revenue is always working with out of date information.
Examples of some of the current problems arising are:
- Employees whose secondary tax income takes them over an income rate threshold are at risk of having tax over-withheld. If Inland Revenue had more timely PAYE information it could intervene more quickly, perhaps to suggest a special tax code.
- More than 52,000 families were underpaid or overpaid Working for Families entitlements in the year to 30 June 2014, effective redevelopment of this system requires more timely accurate PAYE information.
- 18,700 student loan borrowers paid a “catch-up” repayment rate of 17%, rather than the standard rate of 12%, (year ending 30 June 2015) which could have been prevented if they been on the correct tax code.
- Problems which arise from Inland Revenue being unable to verify an individual’s identity. To reduce this problem there is a proposal that individuals supply date of birth information along with their tax code when they change employers.