Six million to receive letters in tax blunder

NEARLY six million people are set to be informed that they have paid the wrong amount of tax, with 1.4 million facing demands for extra payments.

A total of 2 billion has been underpaid through the Pay As You Earn (PAYE) system over the past two years, meaning that the 1.4 million taxpayers will be required to pay an average of almost 1,500 each.

Meanwhile, 4.3 million people will be told that they have paid too much. With a total overpayment of 1.8 billion, each could receive an average rebate of 418.

An HMRC spokesman said: "The vast majority of the 40 million people who pay through PAYE deductions are correctly taxed, but because circumstances change during the year there will always be a minority who have paid either too much or too little."

The first 45,000 letters from HM Revenue & Customs are expected to arrive on Tuesday.

Some 30,000 will alert taxpayers that they are due a rebate, and 15,000 will tell others that they have underpaid and will have their tax code altered next year to claw back the money.

Millions more letters will go out by Christmas to the rest of those caught up in the blunders.

With an average additional payment of 1,428 being demanded, those affected by underpayments could be more than 100 a month worse off next year while the cash is recouped.

But it is believed that in some cases individuals may face both underpayments and overpayments, which could cancel one another out.

In some cases, HM Revenue & Customs will consider writing off demands where taxpayers can demonstrate that they provided all the information necessary to calculate their tax correctly.

The problems arose because at the end of each year HMRC checks that the amounts deducted in tax and national insurance by employers using the PAYE system match up with the information held on their records.

In the past, this was done manually on a case-by-case basis, but a new computer system has now been introduced to automate the checks.

Anita Monteith, of the Institute of Chartered Accountants in England and Wales, said some people could avoid repayments if HMRC made the error while calculating the tax codes manually.

She said: "HMRC can agree to give up collecting an underpayment if they had the right information to calculate tax deductions and did not use it when they should have done.

"However, it would depend on what has caused the underpayment."