UK Proposes All Paychecks Go to the State First

The UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.

The proposal by Her Majesty's Revenue and Customs (HMRC) stresses the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid.

Currently employers withhold tax and pay the government, providing information at the end of the year, a system know as Pay as You Earn (PAYE). There is no option for those employees to refuse withholding and individually file a tax return at the end of the year.

If the real-time information plan works, it further proposes that employers hand over employee salaries to the government first.

"The next step could be to use (real-time) information as the basis for centralizing the calculation and deduction of tax," HMRC said in a July discussion paper.

Read more: http://www.cnbc.com/id/39265847

And, how does one know that in advance of expenses?

This must be a joke, right?

For children, there is a complicated system of tax credits; the employee applies for them, and if they qualify, HMRC tells the employer how to change the employee's paycheck and the amount sent to the government under the PAYE (ie withholding, to Americans) system.

Business expenses tend, I think, to be less likely to qualify for tax breaks for employees in the UK than they do in the US.

The end result is that most people who are employees (as opposed to self-employed), and who are basic rate taxpayers (ie up to £40,000 per year or so), do not expect to have to fill in a tax return. The amount of tax they pay is settled entirely in the withholding system (which is made easier in the UK by there being only the national government involved in income tax - no states. Even though Scotland has the right to set a different income tax rate, it chooses not to, possibly because things would start getting complicated if it did).

A recent news story has been that HMRC has been getting the notices of the withholding amounts wrong for a few million people, both over and under-charging, and over a million people are now facing bills to pay what they were meant to from a year or two ago. Which is what made this memo proposing greater HMRC control of the amount paid come up, and why people said "you must be joking" - HMRC is obviously not very good at their job.

Particularly, lower-income people who get the Earned Income Tax Credit - they're not required to file, either.

A lot of "underemployed" Americans are categorized as "self-employed" and have to file itemized returns. I would assume that it's largely the same over there, and they wouldn't be impacted by the proposal.

..especially if David Camerwrong backs it..

Far fewer exemptions and deductions and figuring things out especially for wage-earners as opposed to businesses. This is quite workable there.