Billions in under- and overpaid tax after HMRC PAYE errors

9 September 2010

Tax-payers would be well-advised to engage professional accountants such as planIT Services to submit their personal tax returns in light of the scale of recent errors made by HMRC who have collected the wrong amount of tax and national insurance through the PAYE system from as many as six million taxpayers.

Figures from Treasury reveal approximately £2 billion was underpaid because of errors in HM Revenue and Customs' PAYE calculation system.

This debt is shared between 1.4 million taxpayers who owe an average of £1,400 each for underpayments over the last two years.

The money in many cases will be reclaimed through an amendment of their PAYE tax codes which will be introduced in the next tax year.

On the other side of the ledger, miscalculations affecting people who have overpaid their income tax and national insurance contributions mean that as much as £1.8 billion in overpayments may have been collected from 4.3 million people.

They will be entitled to a tax refund and a cheque in the post. The figures suggest that the average rebates will be around £420.

The errors came to light following a 'reconciliation' review of the PAYE system which found widespread underpayments by employers.

Figures indicate that the total number of people affected could hit 18 million because there are still open historic cases of under- and overpayment for the years pre-dating March 2008.

From now until Christmas HMRC will write to taxpayers affected by errors in the past two years to inform them of the amount of the miscalculations.

Employees who have moved jobs or accepted company cars or cash benefits from their employers are more likely to have been caught up in the system's inability to cope with modern employment practices.

Many of the problems arose because the process where HMRC checks to ensure that the amounts deducted in tax and national insurance tallied with the information on the tax authority's records has recently been computerised.

Treasury Minister, David Gauke said that, given the current economic climate, moves would have to be made to recoup the lost tax take and that the government was not in a position to "wave goodbye" to money owing.

In certain cases, HMRC said that it would consider waiving demands for extra money if taxpayers could demonstrate they had provided all the information necessary to calculate their tax liabilities accurately.

Mr Gauke said that the government intends to move sensitively and cautiously on the issue: "At the moment we have said that those who owe more than £2,000 - those who are obviously in the most difficult position - we're reviewing exactly how we're going to do that.

"For those who owe less than that we will be seeking to recover that over the course of the 2011-12 tax year through tax codes."

A HMRC spokesman added: "The overwhelming majority of PAYE cases - over 40 million - are right, so most people have paid the right amount of tax.

 "But for a variety of reasons in some cases there will be a discrepancy. The government accepts that the way we go about deducting tax at source needs to be much more accurate and the introduction of the NPS [computer system] paves the way for a real time system which in turn boosts accuracy.

"The roots of this are in the fact that PAYE came in during the Second World War in 1944, at a time when many people stayed with the same employer during the whole of their working lives. It's not like that anymore.

"We have to reflect that and have new systems. Because circumstances change during the year there will always be a minority who have paid either too much or too little. This year, and going forward, the new IT system will mean more people paying exactly the right tax at the right time than ever before."

If you would like to arrange for planIT Services Limited to process your 2009/10 personal self-assessment tax return call 020 7251 8690 or email support@planitservices.co.uk today. The deadline for paper filing is October 31^st while online returns will be due in January.