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?