Umbrella company contractors could pay too much tax under national payroll proposals

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Umbrella company contractors could pay too much tax under national payroll proposals

Posted Oct 20, 2010

An umbrella company provider says that umbrella contractors could end up overpaying tax if proposals to create a centralised national payroll bureau go ahead.

HMRC has suggested that it could act as a central payroll bureau for the entire UK workforce - collecting pay gross from employers, and paying workers directly - net of tax and NI contributions of course.

Umbrella firm giant says that the existing PAYE system is already prone to errors, with many workers paying the wrong amount of tax - especially temps and contractors who change roles on a regular basis.

The amount of tax collected due to tax errors has rocketed to £238m in 2009/10 compared to £96m in 2008/9 - an increase of 148%.

MD of giant, Matthew Brown, said:

"The PAYE system is prone to errors. The proposal that a centralised computer should be responsible for the entire UK workforce is a chilling prospect when you look at HMRC's track record in this area.

"The PAYE system was designed for a time when people changed jobs far less frequently than they do now. An error by a centralised computer could leave millions of workers unpaid or taxed the wrong amount. Temporary workers, because of the frequency with which they change jobs, could be particularly vulnerable.

"If HMRC assumed responsibility for payroll, employers and recruiters could experience huge problems with workers because of mistakes beyond their control."

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