The press has had a field day with the news that 5.7 million taxpayers have either overpaid or underpaid tax through the PAYE system. HMRC are writing to the taxpayers affected to let them know whether they will receive a refund or a tax bill.
The errors concern the 2008/09 and 2009/10 tax years. The problems came to light as a result of annual checks that HMRC carry out to ensure that information on PAYE and NIC deducted by the employer matches that held by HMRC. The checking process has been improved as a result of HMRC’s new PAYE computer system, resulting in more discrepancies coming to light than in the past.
Taxpayers who have overpaid will receive a refund. However, those who owe tax will receive a bill. If the amount underpaid is less than £2,000, the underpayment will be collected by an adjustment to the taxpayer’s tax code. However, if the amount is £2,000 or more, HMRC will try to collect the underpayment as a lump sum.
All a Bit Unfair?
Arguably, it is a bit unfair to have provided HMRC with the right information only to find that they have got their sums wrong. It is one thing paying a tax bill that is expected and for which one has budgeted, but is quite another to receive an unexpected demand through the post, particularly if the amount is more than £2,000 and you are expected to pay the whole lot in one go.
Before panicking, the first thing to do is to check the tax calculation sent to you by HMRC (form P800). Do not assume that it is right. As has been seen, HMRC get things wrong. The HMRC website contains guidance on checking the calculation (see www.hmrc.gov.uk/p800/paye-tax-calcs.htm). Help on checking the calculation can be obtained from an accountant or the citizens’ advice bureau. Anyone who believes that their tax calculation is incorrect should contact HMRC.
The average underpayment is around £1,428. Underpayments of less than £2,000 will be collected through an adjustment to the 2011/12 tax code.
People affected will receive a revised notice of coding (P2) from January 2011. In most cases, the amount owing will be repaid at a rate of around £120 a month as a deduction from pay under PAYE.
In cases of hardship HMRC may agree to spread the repayment over three years rather than one. Taxpayers seeking this option should contact HMRC to discuss their case.
A Possible Write-Off?
Much has been made in the press of extra statutory concession A19. This is a relaxation of the law which allows HMRC to write off arrears of tax which have arisen where HMRC failed to make proper and timely use of information that they have received from the taxpayer and the taxpayer could have reasonably believed that their affairs were in order. Guidance on the HMRC website (see www.hmrc.gov.uk/esc/esc.htm) sets out HMRC’s approach to claims under ESC A19 and also the information that they require to consider such a claim. Anyone wishing to make a claim under ESC A19 should ring HMRC on 0845 300 0627, ensuring that they have the necessary underpayment to hand.
There is good news for anyone owing less than £300. In the House of Commons on 8 September, the Exchequer Secretary David Gauke announced that repayments of less than £300 would be written off.
By Sarah Bradford