HMRC derided for centralised tax and NI contribution proposal

HM Revenue & Custom proposals to bypass employers and deduct tax directly from workers’ pay packets have been met with derision by business groups.
 
The Treasury agency has produced a discussion paper suggesting that tax and national insurance collection should occur centrally before money is paid into employees’ bank accounts. The move would mean that employers were no longer responsible for deducting tax from staff wages, but would instead be required to provide HMRC with information on gross salaries.
 
But Michael Fallon, a senior member of the Treasury Select Committee joined the CBI and Institute of Directors in warning against what HMRC itself has described as a "radical option".
 
He told the London Evening Standard: "The HMRC has got to re-establish trust and confidence among taxpayers in the present system before they could even think about this kind of move to centralisation."
 
The government department has come over fire over recent weeks for its handling of a tax ‘clawback’ debacle, which resulted in 1.4 million people being told that they owe the Inland Revenue a total of £2bn in underpaid tax. They will also be expected to pay interest on monies owed, even though the error was no fault of their own.
 
The CBI likewise said it was "extremely sceptical" of the practicality of HMRC’s idea, while Richard Bacon, head of taxation at the IoD, warned: “This suggestion that gross pay might flow into a central computer, which would then pass net pay on to employees, is completely unacceptable. Sooner or later, the system would break down and some people would not get paid.”
 
Clive Gawthorpe, a partner at accountancy firm UHY Hacker Young, added: "Even if we had a tax authority that had proved it could work efficiently, there’s only an outside chance that this would work."
 
The news came to light as it emerged that a clampdown on tax avoidance is to be announced at the Liberal Democrat conference this week. According to the Guardian, prime minister David Cameron has given the Lib Dems clearance to announce the introduction of new measures, which are intended to both maximise Treasury revenues and demonstrate that the tax system is operating fairly.
 
Last week, the Treasury revealed that issues such as tax avoidance and evasion had led to the tax gap – the difference between the amount of tax collected and what is owed - rising by £4bn during fiscal year 2008-2009 to £42bn, the equivalent of 9% of all potential taxes.
 
Avoidance contributed to the majority of the £6.9bn gap relating to corporation tax, accounting for 14% of the total problem. The VAT gap rose 3.5% to £15.2bn, up to 16% of the total, while the gap for evasion of income tax, national insurance contributions and capital tax gains remained stable at about 5%.