New PAYE system promises to end shock tax demands

 Taxpayers should face fewer surprise tax demands in future if the launch of new PAYE system is successful.

The new system, called "Real Time Information (RTI)", will see employers send the Revenue monthly details of how much each employee has been paid and how much tax has been deducted under the PAYE system. Currently such details are sent only once a year, allowing incorrect tax deductions to mount up.

HM Revenue & Customs has begun a pilot test of a new system that should ensure that people pay the right amount of tax first time. If successful, the system should see far fewer taxpayers hit with demands for extra tax months or years after they thought they had paid the right amount.

The first of 10 employers in the pilot scheme submitted their RTI return last week and it is hoped that most employers will join the scheme from April 2013 and all employers will be using the service by October 2013.

"RTI will make it easier for employers, pension providers and HM Revenue & Customs (HMRC) to administer PAYE," the taxman said. "Under RTI, employers and pension providers will tell HMRC about PAYE payments at the time they are made – as opposed to only at the end of the year."

Around 1.4m people were sent tax demands for a total of £3.8bn after HMRC admitted in September 2010 that it had got millions of tax bills wrong owing to problems with the PAYE system.

David Gauke, the exchequer secretary to the Treasury, said: ""RTI will remove administrative burdens of £300m a year from employers, mainly from the abolition of the end-of-year PAYE returns process – the biggest single contribution that any tax change could make."

He added: "RTI will ensure that the PAYE system meets the needs of the 21st century. It will improve the service to taxpayers by making it easier to ensure that people pay the right tax after a change of job."

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