HMRC - a real-time tax system?

Date: 10 September 2010

Is HMRC going to move to a real time tax system?

Over the last few weeks millions of people in the UK have been getting letters from HMRC letting them know they’ve paid too much tax and are due a refund while over a million could face demands for payment of underpaid tax.

Why is this happening? Surely, HMRC should know what people owe or are owed?

The causes lie in antiquated software and labour-intensive processes that result in the need for adjustments. Further, the problem is that the PAYE system dates back to the 1940s and a time when most people had only one job for the whole of the working lives.

The software and systems need to literally catch up with the actual situation and individual employment moves through the PAYE system; reconciliations are needed every year to bring estimates of income into line with actual income for the year.

Accordingly, HMRC are now looking seriously at introducing a system that performs adjustments and reconciliations in real-time. Exchequer Secretary David Gauke told MPs:

“We need to move to a system that reflects modern working patterns and allows tax payments to be made in real time rather than on guesswork in advance, or reconciliation a year or two later".

If this was to go ahead it would mean a significant investment in the IT systems that handle our tax affairs.

At My Accountant Friend we’d welcome any move to provide more clarity, automate manual processes and make taxpayers lives easier. That’s central to our investment in technology (e.g. our online system, iPhone app, etc.).

Though, don’t expect ‘HMRC meets the matrix anytime soon’ – experience suggests that this could be years away.