As many papers report, it’s been discovered that more than 10 million people may be in line for a tax rebate due to errors in the HM Revenue and Customs tax code system whilst nearly 6 million people in the UK have paid the wrong amount of tax in the past two years, with some facing bills of up to £5,000.
It’s claimed that the problems arose because at the end of each year HMRC manually checked that the amounts deducted in tax and national insurance by employers using the PAYE system match up with the information held on their records. Those checks have now been, at least partly, computerised.
There will, of course be howls of protest — not least from those saying they do not want to pay and it’s not their fault they have to. That’s nonsense. You will hear no such protest from those receiving a refund.
The truth is multifold.
The first is you can’t get decent IT on the cheap — and this has been tried for too long.
Second is you can’t run a tax system without enough people — whether you have the right IT or not.
The third is that if people don’t want to submit annual tax returns then they have to accept this risk.
Fourth, cuts now will only exacerbate this problem in the future.
The reality is that this tax is due — and the vast majority of those who owe it know that and have been trying to get away without paying for too long. No one with a company car not paying tax on it is innocent: everyone knows tax is due on them, and this is by far the most common cause of the underpayments. I have little sympathy for them: I do with those who have overpaid — but research has always shown people like tax rebates and would prefer getting them than to risk underpaying.
But the deeper reality is that tax is key to the relationship between a subject and the state in the UK — and running tax on the cheap is, has been and will be a mistake. Tax justice demands we invest in the process of tax collection. We must do so now.
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I’d like to see the government have the balls to scrap PAYE. Just send a bill at the end of the tax year to the employee for the tax due from an annual company reported value of salary + benefits in kind.
@Noel Scoper
You can safely assume I disagree with this comment.
It’s so ridiculous it does not deserve further reply.
Even Jersey has abandoned such a system because it is so open to abuse.
But that’s probably what you want, isn’t it?
@Richard Murphy
Hi Richard,
Can you explain why this is likely to be abused? Hong Kong collects its salary tax this way and as far as I can tell, the employer saves costs, the taxpayer knows how much they pay for services and the local accountants get nothing from me for doing my tax return which is just 4 pre-printed pages I just sign and pay (I’d have thought you’d have approved of that!)
Noel
PAYE is an outdated system.
We do, of course, have “a bill at the end of the tax year to the employee for the tax due from an annual company reported value of benefits in kind” – it’s called form P11D. So there’s no reason the same couldn’t be extended to salary.
Or do you have evidence that P11Ds are being abused, and if so, are they being abused more than P11D?
But Noel, the vast majority of UK income tax payers don’t have to fill in a tax return anyway at the moment. It’s done for them through the PAYE system. Surely that’s a major administrative ADVANTAGE of PAYE compared with a system where everyone has to do a tax return? People do know how much income tax and NICs they are paying as it’s clearly marked on their payslips and the P60 forms they get at the end of the year.
@Noel Scoper
Let’s talk economics first
£170 bn or so income tax a year + NIC – wel over £200 billion collected under PAYE pa
All now to be collected at the year end – but after the event of course
So let’s say if paid 6 months after the year end that’s £300 bn on government borrowing in a go
What a winner?
And how is it abused? By people disappearing and by bad debt, of course
This idea is so ludicrous it is farcical
@Richard Murphy
Hi Richard,
“So let’s say if paid 6 months after the year end that’s £300 bn on government borrowing in a go”
The first year my HK tax was due was for the 2009/10 tax year. HK IRD have just sent me a bill for 2009/10 and prepayment demand for 2010/11. That is due 75% in January and 25% in April so I’m pre-paying tax due on income just as I’ve earnt it. Seems to solve that issue simply and at low cost.
“By people disappearing” – my employer has to have my tax ID before I can start work, if I owe tax I’m sure IRD will know. If I intend to leave HK, I have to pay up my tax – if I don’t, the immigration officer will know if I try to leave!
“bad debt” – it’s my responsibility to ensure I keep the cash from my salary to pay my tax bill. Same as with self assessment in the UK.
Let’s face it, in reality the shock of sending a wedge of cash to HMRC at the end of the year for most people might make them think a bit more where their cash goes!
@Howard
“Surely that’s a major administrative ADVANTAGE of PAYE ” – instead, the administrative loads falls on the employer who is now the tax collector (collecting PAYE, NIC and probably doing VAT as well).
I don’t see how giving someone a 2 page tax return that states “your employer is…. and paid you …….. so your tax bill is ……” complicated things. Sure, if you are thinking UK tax returns, yes they are complex, but they don’t need to be.
Using my Hong Kong example, 85% of people don’t pay income tax. If you don’t think you need to pay salary tax and your employer does not report your income above the tax free threshold (HK$ 108,000 per person, HK$ 216,000 for married couple), you don’t get a return or a bill. If you do get a return, it’s already pre-filled with the information and is mostly correct. Just sign, send and pay.
@Noel Scoper
I have no problem with pre-filled forms
Everything else you say promotes small government, flat tax, and all the abuse that goes with it
And that is – as I say – abuse
See http://www.taxjustice.net/cms/upload/pdf/AACA_flat_tax_report_-_JUN_2006.pdf
@Noel Scoper
I understand that the reason why only 15% pay income tax in HK is because they get the bulk of revenue from land rents/leases. We in the LVT movement use this as a positive example. However, I understand that many of your population can barely afford decent shelter. I presume then that you have no provision for welfare in this haven of free enterprise. Wonderful for some.
@Noel Scoper
My personal view – having talked to payroll depts in the previous businesses I’ve worked in – is that the admin burden of doing PAYE and NICs is not that big for employers. It can all be done via accouting software very straightforwardly. VAT is considerably more fiddly – in this respect, the preference for increased reliance on VAT and less on direct tax since 1979 is unfortunate.
We may be operating at cross-purposes here – the tax return you’re describing seems not much different from the P60 that HMRC sends out to taxpayers at the end of each tax year saying how much NICs and IT they’ve paid. The only difference is, with a P60, people on PAYE have paid the tax as they earn (hence the name).
In my view that’s good because there’s no danger of someone spending all the money upfront and then ending up with a whacking great tax bill which they can’t pay (something which I imagine happens to quite a few self-employed people, who pay in arrears after receiving a tax return.)
This raises a real moral dilemma, which is why I visited this site today. The crux of the TJN is that taxpyers often get too literal with the Tax Code and ab use the spirit of it by emphasising the letter of it. Here we now have HMRC saying we have made an error, but the letter of the law allows us to claw it back. So – should HMRC stick with the spirit (“we give you a code and you just pay up and relax”) or the letter of the law (“we reserve the right…”). And if the letter of the law is good enough for HMRC, why is it not good enough for taxpayers who contribute to the tax gap through legal means of tax planning?
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I think you will find that your understanding is quite wrong.
Here in the UK welfare encompasses more than education and health care. There was a report on HK in the FT a couple of months ago about people living in great squalor in cages. Are you happy with this?