PAYE, the shock of simplification for regulated professions?

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2016 is the year that fiscal reform come into force that has been as eagerly awaited as it was dreaded: pay as you earn (PAYE) income tax for individuals. On paper, this change to the way that income tax is paid seems to be a step towards simplifying the process. However, in practise it requires work from companies’ internal accounting departments as well as their accountants. In time, this can only create new sources of liability.

 

When unveiling the 2017 budget on 28 September, the French Minister for the Economy confirmed that PAYE income tax would be “applied in full” from 2018. The main advantage of PAYE? The tax rate will be applied to income from the current year instead of the prior year… with a few caveats.

Simplification may well prove anything but simple to achieve, if only with regard to the number of earlier attempts, the last of which was 10 years ago! The main issue lies with how taxes are synchronised with income for the current year. The number of special circumstances make it a complex operation:

  • Taxpayers receiving tax credits
  • Self-employed workers and professionals
  • Traders and craftsmen, or workers on temporary contracts.

Blame for mistakes falls squarely on accountants

The practical work of calculating income tax, when synchronised, will be performed by internal accounting departments, chartered accountants, and chartered management centres. These are all private stakeholders that will be on the front line when dealing with the complex system, bearing the risk of error and liability that comes with this new way of working.

Indeed, what exactly will happen when an employee or self-employed professional has their tax bill amended following a calculation error? If we keep the tax return and the tax authorities have the power to correct payments after the fact, then there is still the risk that an omission or uncorrected error could lead to an amended tax bill.

For example, if an incorrectly applied rate led to an amended tax bill, then an individual or self-employed professional may seek to invoke the public liability of their accountant in two different circumstances:

  • If they are issued with a fine for reminders, interest on late payment, and fees applied by the tax authority
  • If they pay too much tax due to insufficient information and advice.

In other words, will chartered accountants one day have to become tax advisors to their clients’ employees, at the risk of expanding their range of liability?

 

Rajâa AOUINA
Finance and Services – GM Consultant Group