HMRC unveils PAYE tax-collection reforms

"Ambitious" plans to reform the pay-as-you-earn (PAYE) system have been unveiled by HM Revenue & Customs. It says it wants to modernise collection of income tax and National Insurance from millions of workers' pay packets via "real-time" information.

This means employers will send HMRC information about tax and other deductions when an employee is paid, rather than at the end of the year as at present. This will give the taxman instant information on how much taxpayers have earned, and should allow better calculation of benefits and tax credits. It may also help with speedier income-tax adjustments when necessary.

David Gauke, the Exchequer Secretary to the Treasury, said real-time PAYE information "will also support the Universal Credit" by enabling much faster updating of information about claimants' financial circumstances. The new system should also make it easier and cheaper for firms to administer payrolls.

HMRC says it would like to see the overhaul of PAYE carried out by October 2013.

Graham Farquhar of accountants Ernst & Young said the "ambitious"changes "would lead to better levels of service", but warned of upfront costs to HMRC, and the potential for disruption.