/ Money

Should we pay for HMRC’s tax miscalculations?

Pencil rubbing out tax form

HMRC has admitted miscalculating almost six million tax bills over two years. For some that’ll mean a nice little refund, but for others this could mean their wallets will be ambushed after being told they’ve paid too little.

HMRC’s miscalculations will result in 4.3 million people getting an unexpected tax rebate – on average £418 per person.

But less glad tidings are in store for the 1.4 million who are deemed to have paid too little. They face a demand for extra tax – the average bill being as much as £1,500.

Those affected have had tax deducted from their earnings under Pay As You Earn (PAYE). Tax code errors are likely to have been caused by a change of job, doing more than one job at a time, or employee benefits (like company cars or health insurance.)

Mistakes are bound to occur in any system, but six million in two years seems unacceptably high. HMRC is keen to point out that over 40 million employees pay the right tax each year, but being faced with an unexpected thousand pound bill will definitely come as a nasty shock…

Treasury Minister, David Gauke, was at pains to point out that those who owe tax as a result of HMRC’s error won’t be expected to pay it back all at once. Instead, most people will be asked to pay additional tax each month, from the start of the new tax year in April 2011, arranged (ironically) by an adjustment in their PAYE code.

Possible tax loophole could save you

What HMRC are less keen to communicate is a possible loophole that may provide a respite for some. HMRC are meant to act on information received about your finances within a year of receiving it. So, if the current demand relates to tax due for 2008-9 (i.e. two years ago) and you can show that you supplied the necessary information on time, you may be able to get the extra tax written off.

This is possible under HMRCs’s Extra Statutory Concession (ESC A19). Details are given on the HMRC website, together with details of how to make a claim.

David Gauke has accused the previous government of having left problems with PAYE ‘to fester’. He’s promised reforms that will secure an ‘accurate and fair system going forward’. Let’s hope he’s right – it’s the least we can expect from an organisation as powerful as HMRC.

A nice gesture might be a discount on the tax being clawed back. Some would even say it ought to be written off completely. Should people have to pay the difference, or should the government meet the cost and write it off?


This does not surprise me at all.
I manage my mother’s tax affairs and about 2months ago was sent a demand for 28 pence!!! due to their calculation errors. When challenged on this, particularly the cost of advising me and processing a cheque I was told that the public would expect all outstanding debts to be collected. What rubbish as it would probably cost £15 to collect 28p. I offered to pay it in the forth coming tax year in the normal tax system. This would be OK I was told but would have to add interest of 10p —————30% interest.
Irrespective of the small sum involved the principle stinks. No wonder the HMRC is a laughing stock, but unfortunately for most tax payers it is not economic to employ professional accountants to ensure that only the correct tax is paid with all the various allowances. Unfortunately HMRC has the upper hand.

Watch out for fraudsters that may prey on you when you’re trying to sort out this overpaid or underpaid tax. HMRC will only contact you by post, not by email or phone.

The HMRC website gives the following advice: ‘HM Revenue & Customs (HMRC) would not inform customers of a tax rebate via email, or invite them to complete an online form to receive a rebate of tax. Do not visit the website contained within the email or disclose any personal or payment information.’


The tax system is outrageous and grossly unfair. Tax is extortionate. If you calculate your income tax, NI, VAT, Council tax and other taxes, the prportion of your own money taken it is quite unreasonable. We really do need to cut back government; it wastes so much.
The tax system is so complicated that the tax man and accountants do not cope with it, so why should normal people be penalised for errors that are not of their making?
The system must be simplified to reduce cost of collection, cost to taxpayers if they have to seek accountancy advice and the likelihood of errors.
The taxman should also pay interest on overpaid tax at the at the same rate that is charged for overdue tax. The present system of differential rates is also quite unfair.
The concept of the taxman taking control of wages and salaries in order to deduct tax and then passing the balance on is totally unacceptable. It is a first step towards a communist state where the government doles out a living allowance according to its opinion on your worth.
Why is NI separate from tax? It is really just another income tax and a complication.
Why do MPs have a special tax system? They should be in the same boat as the rest of us.

From media reports I heard that this tax foul up is due to a computer error. If this is the case then how does a computer of this complexity get its information so that it can calculate everyones tax ? It comes from a human being and as such the blame should sit squarely on the those shoulders. People who owe tax to HMRC should not be expected to repay the amount asked. I realise that mistakes happen in all walks of life but the HMRC systems should be more scrutinised to prevent this kind of error.

pickle says:
8 September 2010

NO – If the taxman made this mistake, he should stand by it. I suspect if you add up the overpayments and underpayments things would nearly balance out. Has anyone tried this?

I’m not sure whether that would be fair on those who have overpaid by a few hundred quid.

It is, indeed, outrageous that HMRC can cause such havoc by collecting the wrong amounts of tax. Blaming computer systems is the norm that we should not accept – people in HMRC (or the computer system contractor) should be taken to task over this. Correcting the errors will be costly in both payments and administering them. The difficult part is that whatever finances are used to put this right – are not HMRC’s finances or Government finances. Neither of these actually have any finance. It is public money paid by the public at large and has already been spent before it was collected (which is why we have a national debt). Whilst we all wish to see refunds made for over collected tax – we must remember who will be financing this – all other taxpayers. Hopefully, the amounts of underpaid tax will be paid up and cover much, if not all the cost. However, let us not forget that ALL government mistakes are paid for by the public at large. This current problem was, of course, inherited by our new coalition government from the previous Labour administration and the tax issue probably created as a result of merging the Inland Revenue with Customs & Excise.

It is a disgrace that our Administrations are incapable of getting computer software right – and at a huge cost to the taxpayer, and no doubt huge profits to the providers. Perhaps we could ask Universities to undertake this work in future – lots of bright people and the payments would help education’s future?
However, back to underpaid and overpaid tax. There is no such thing as Government money – the money is yours and comes out of your pocket. So, do you want to give more of your money to those who are fortunate enough to have been charged too little tax, when you have perhaps been charged too much? The assumption seems to be that all undercharged and being asked to repay are low paid and in dire staits – not the case, they are a mix of people. The answer is surely to make sure that those who are in genuine need have more time to pay than one year.

mike brown says:
9 September 2010

Is it any wonder that people become annoyed with all things governmental. The administrators responsible – they feed computers the data in the first place – should be brought to book, what is happening to those who are to blame? I pity those whose business lives are complicated in tax terms and busy in administrative terms and who as a result have made mistakes in completing tax returns. The Taxman has little time for excuses, apologies or even reasoned argument. Now the boot is on the other foot some humility and compassion is needed in order to sort this out. Watch this space.

We’re going to be dealing with some of these points on the Money Podcast, which you can hear on Tuesday.

Chris Mayes says:
10 September 2010

I think there are two issues here

1. Is the tax i’m paying correct or not ? I’d always assumed it was pretty close but not absolutely right, so the change to a newer system was always likely to flush out some incorrectness in the old system – and will probably introduce new errors that arent anticipated. This is just progress i suppose & i couldnt get too excited about it.

2. How quick should we pay it back (or recieve cheques) and what interest rate is there. My fear is that the taxman will just be blody minded here & say you owe now , oh… amnd heres interest on a debt you just found out about. Not too worried about the firts bit, but paying interest is just a nonsense – its thier error & whilst they are right to want the money as its unpaid tax, asking for interest as well is a complete nonsense: If the system had been “right” people would have paid at the roght time – its thier system that was wrong

Sophie Gilbert says:
10 September 2010

If we receive back because of HMRC’s tax miscaculations, it logically follows that we should also pay a little more because of them. We owed the money in the first place. Why should deserving tax-funded services receive less money because of governmental error?

Then as Edward East rightly suggests, simplify this vastly overcomplicated system so that fewer errors are made and less of our money is wasted on fixing them.

H Dhokia says:
10 September 2010

Emphatically NO! This is the only financial institution in the country which behaves like the gestapo and gets away with it. Any other business company or body are amde to accept their faults and lick their wounds.

What’s more, at this rate they can forever keep updating their systems and procedures and keep coming back for more under the pretext of ‘Oh our systems (which we funded) have messed up’.

The present one cost us, the taxpayer, £390M. I wonder if the current demands sent will recover that and how long before the next hardware update will fault the current hardware and send out more demands.

I also wonder if the current new super duper system got any of the bankers’ pay, bonuses, benefits, pay-offs and taxes wrong?? Are they going to get any demands dropping thro’ their sunny villa letterboxes?

Ade says:
16 July 2020

Another example where errors should be written off,
thus forcing The Tax office to improve if they want more revenue.