HMRC has issued a discussion document exploring the option to move to a system that collects information on Pay As You Earn (PAYE) deductions at the time employers pay individuals.

The business processes behind PAYE have remained unchanged for 66 years. HMRC's discussion document considers whether there are alternative ways of collecting information that would reduce administration costs and provide a foundation for further change. The document outlines an option, “Real Time Information”, for employers to report the payments and deductions more frequently – at the time of each payment.

HMRC consider that Real Time Information would significantly improve the tax and welfare systems by:

• Making it easier to ensure individuals pay the right tax after a change of job and possibly removing the need for the P45/P46 procedure
• Offering the prospect of simplifying the PAYE end of year reconciliation process for employers, HMRC and individuals
• Allowing more accurate payment of benefits and reducing the costs of administration
• Reducing the uncertainty for individuals and HMRC around the levels of employment income on which tax credits awards are based that can lead to errors in claims

According to HMRC, Real Time Information could provide a foundation for further changes to PAYE and in particular in the longer term PAYE could be improved for all concerned if calculations could be made more accurately.

Closing date for responses is 23 September 2010.

The full text of the document can be found on the HMRC website at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_030623