U.K. to Citizens: Hand Over Your Paychecks

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The U.S. enjoys a number of British exports - James Bond, Harry Potter and Rolls Royce (Stock Quote: RR), to name a few.

But one export the U.S. would likely reject is a proposal from a British government agency to hijack workers’ paychecks for taxes.

The proposal comes from Britain’s tax collection agency known as Her Majesty’s Revenue and Customs. The agency would mandate that employers send employee paychecks straightaway to the HMRC, where taxes owed would be deducted. The worker would then be paid via a bank transfer.

British employers currently use the same system that U.S. firms use – they pay the employee but withhold necessary taxes in advance, and send the money to the government. If reformed, the system, called Pay As You Earn, would not only delay paychecks to employees, but also give government access to private citizens’ bank accounts.

The HMRC acknowledges how drastic the proposal sounds – a position paper released by the agency in July called it “radical” – but it wants to set up a plan where taxes are paid in “real time.” It also wants to recoup the estimated 10% of employee taxes that go unpaid each year.
"The next step could be to use (real-time) information as the basis for centralizing the calculation and deduction of tax," HMRC said in the position paper.

Critics are already standing in line to disparage the plan. In an interview with CNBC, George Bull, head of the tax department at Baker Tilly, said that the tax plan could fuel fear and anxiety among U.K. workers.

"If HMRC has direct access to employees' bank accounts and makes a mistake, people are going to feel very exposed and vulnerable," Bull said.
Bull also told CNBC that the HMRC’s track record on handling real-time financial transactions is a sorry one, with plenty of “high-profile errors.”

He also called the cost of the system “phenomenal.”

U.K. officials say that the paycheck garnishment idea is only a jump-off point for discussion and debate, and not an official policy. According to a spokesman for Britain’s HM Treasury, “no decisions have been made about the future of PAYE and it’s for ministers to decide about any possible changes.”

Even so, the debate will likely fuel a big backlash by the public and by government watchdog groups who fear too much encroachment by the government into our private lives. 

On one message board, “Charlie from Edinburgh” summed up the feelings of the British public: “Another stupid idea from this stupid government.”

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