The compliance costs of collecting direct tax in the UK: An analysis of PAYE and National Insurance

This paper analyses the determinants of compliance costs of the system of direct taxation known as Pay as you Earn (PAYE) in the UK. This is administered by firms who deduct the tax from their employees and, after a lag, pay it to the Government. The analysis shows that there are important economies of scale. In addition compliance costs are directly proportional to (i) 'disturbance variables' such as labour market flows, (ii) 'complexity variables' as proxied by the average wage and the proportion of casual workers and (iii) the frequency with which workers are paid. (C) 2000 Elsevier Science S.A. All rights reserved.