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BBC News - Six million people in UK have overpaid or underpaid tax
Six million people in UK have overpaid or underpaid tax
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David Gauke, Exchequer Secretary to the Treasury, said those who had underpaid would be given time to pay
Nearly six million people in the UK have paid the wrong amount of tax.
About £2bn was underpaid via the Pay as You Earn (PAYE) system in the past two years, with about 1.4 million people owing an average of £1,500 each.
But £1.8bn has also been overpaid and some 4.3 million people will get a rebate because they have paid too much.
Treasury minister David Gauke said that in the current financial climate, the government was not in a position to "just wave goodbye" to the money owed.
He said the government had inherited the problem and the PAYE system - which was created in the 1940s - was struggling to cope with modern working patterns.
A spokesman for HM Revenue & Customs (HMRC) rejected suggestions that as many as 10 million people might be eligible for a rebate because there is a backlog of unresolved cases from the years before 2008-09.
"We don't recognise the 10 million figure, just because a case is open does not mean a refund is due," he said.
Notification letters A new computer system introduced by HMRC in 2009 has allowed more discrepancies to be identified.
As a result millions of letters will be sent to taxpayers across the UK informing them of errors in their contributions.
The first 45,000 are expected to arrive on Tuesday, with 30,000 informing recipients they are due a rebate of on average £418.
The remaining 15,000 letters will tell taxpayers they have underpaid and will have their tax code altered next year to recoup the money.
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Paul Lewis, presenter of Money Box on BBC Radio 4: "There is an appeal process"
It is thought that some individuals may face both underpayments and overpayments, which could cancel each another out.
Discrepancies arise when the amounts deducted in tax and National Insurance by employers using the PAYE system do not match the information held on HMRC records.
This most often occurs when individuals change jobs, have more than one job at the same time, or because employers are using the wrong tax code.
In some cases officials say they will consider writing off demands for additional money if taxpayers can demonstrate they provided all the information necessary to calculate their tax correctly.
An HMRC spokesman told the BBC: "The overwhelming majority of PAYE cases - over 40 million - are right, so most people have paid the right amount of tax.
'Boost accuracy' "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."
John Whiting, from the Chartered Institute of Taxation, told the BBC that some of the poorest, including those who received means-tested benefits, could have been hit twice, as their benefits would have been incorrectly calculated.
"It is very difficult to go back and claim benefits you underclaimed, whereas, as demonstrated, if you owe tax it is possible for the revenue to back claim there," he said.
Mr Gauke said the government wanted to move sensitively and cautiously but he recognised the difficult situation some people were facing was "through no fault of their own".
He added: "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."
'Heartless' George Mudie, a Labour MP and member of the Treasury Select Committee, told the BBC he believed there was a case for waiving the debt owed by those who had underpaid.
He said he believed the HMRC had handled the situation badly and unfairly.
He described the HMRC as a "heartless" and "arrogant" organisation and said: "If they want money, they take the money and very rarely are they prepared to consider, even when they make mistakes, not taking the money."
Emma Boon, from campaign group the Taxpayers' Alliance, said the HMRC must take steps to help those told they have to pay more.
"Some of them won't be finding out about it for a few weeks or maybe even a few months, so it could be towards Christmas which really isn't what you want to hear," she said.
In June, the government ordered a review of how the PAYE system works and is encouraging the public to contribute their thoughts about how it could be improved.
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Q&A: Income tax system and you
HM Revenue and Customs is set to tell some six million people in the UK that they have paid the wrong amount of tax.
Between September and Christmas, HMRC says about 4.3 million taxpayers will receive rebates after paying too much through the Pay as You Earn (PAYE) system.
About 1.4 million will be sent letters telling them they have underpaid and need to make up the extra.
How might someone have under or overpaid income tax?
There are a number of reasons why people may have under or overpaid their tax. Your employer may have used the wrong tax code, you could have started a new job or you may have had an emergency tax code for a while. You may have only worked for part of the year or you had more than one job at the same time. You may not have told HMRC right away about changes to benefits you got through your work, or your circumstances changed. Perhaps you were made redundant or became self-employed and therefore your income reduced. Other income such as investments or rental income may have reduced but you didn't tell HMRC. It could also be that HMRC made a mistake with your tax.
How does PAYE work?
If you are an employee your employer will deduct income tax directly from your wages and pass it on to HMRC.
The amount deducted is based on your total taxable income taking into account any tax allowances and your individual tax code as provided by HMRC.
At the end of the financial year, HMRC compares the amount of tax it has received from each taxpayer with the amount it would expect to receive according to their tax code and income. Anyone on the wrong tax code could end up paying too much or too little.
Why have so many discrepancies occurred?
The PAYE system was originally devised around employers since at the time it was introduced many people tended to stay with a single firm for life. Until recently it was possible to keep an accurate record of employees but since the 1970s work patterns have been transformed with workers now often having many jobs during their lifetimes. Taxable benefits like health cover and company cars have complicated matters further.
In response the system was overhauled and in June 2009 a new IT system was introduced focusing on the employee. Where previously, all the data for an individual could be spread across as many as 12 databases, it is now all in one place.
An HMRC spokesman said the new system enables it to keep much more up-to-date records so initially more mistakes will be highlighted. However, in the future more people will pay the correct tax at the right time thus reducing the number of corrections.
How will I know if I am affected?
If you are one of the estimated six million people affected you will receive a letter from HMRC sometime between now and Christmas. The first 45,000 people will receive their letter, known as the p800, next week. The majority of these have paid more tax than they should but some 15,000 have not paid enough.
If I have underpaid, how will I pay the extra I owe?
In most cases, underpayments will be recovered during the the 12 months of the financial year 2011/12 through your salary. This will happen automatically, so you will not need to do anything unless you believe the information in your p800 letter is wrong. If so, you should contact HMRC.
HMRC say that in some circumstances they will consider writing off underpayments, but only if they are provided with sufficient evidence to prove that an individual did provide all the information needed to get their tax right and could have reasonably expected their PAYE deductions to be correct.
What if I cannot afford to repay the tax? Can I refuse to repay?
HMRC says that if someone genuinely can not afford to repay the tax , they should contact their local tax office. However, if a tax debt is legally due it should be paid.
If I have overpaid, how will I get the money back?
Money that was overpaid will be returned via your wages.
How can I find out my tax code and keep it up-to-date?
You will find your code on your P45 form, given to you by your employer when you stop working for them, which is why you should make sure you give that form to your next employer. If you have lost your P45 and want to find out your code you should contact your local Tax Office or ask your employer.
If you think your tax code is wrong or you think you may need to update it, you should also contact your Tax Office.
Sometimes when you start a new job your employer will put you on an emergency tax code until HMRC has worked out what it should be. While you are on this emergency code you may be over or underpaying the right tax.
BBC News - QA: Income tax system and you
Six million people in UK have overpaid or underpaid tax
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David Gauke, Exchequer Secretary to the Treasury, said those who had underpaid would be given time to pay
Nearly six million people in the UK have paid the wrong amount of tax.
About £2bn was underpaid via the Pay as You Earn (PAYE) system in the past two years, with about 1.4 million people owing an average of £1,500 each.
But £1.8bn has also been overpaid and some 4.3 million people will get a rebate because they have paid too much.
Treasury minister David Gauke said that in the current financial climate, the government was not in a position to "just wave goodbye" to the money owed.
He said the government had inherited the problem and the PAYE system - which was created in the 1940s - was struggling to cope with modern working patterns.
A spokesman for HM Revenue & Customs (HMRC) rejected suggestions that as many as 10 million people might be eligible for a rebate because there is a backlog of unresolved cases from the years before 2008-09.
"We don't recognise the 10 million figure, just because a case is open does not mean a refund is due," he said.
Notification letters A new computer system introduced by HMRC in 2009 has allowed more discrepancies to be identified.
As a result millions of letters will be sent to taxpayers across the UK informing them of errors in their contributions.
The first 45,000 are expected to arrive on Tuesday, with 30,000 informing recipients they are due a rebate of on average £418.
The remaining 15,000 letters will tell taxpayers they have underpaid and will have their tax code altered next year to recoup the money.
Please turn on JavaScript. Media requires JavaScript to play.Click to playClick to play
Paul Lewis, presenter of Money Box on BBC Radio 4: "There is an appeal process"
It is thought that some individuals may face both underpayments and overpayments, which could cancel each another out.
Discrepancies arise when the amounts deducted in tax and National Insurance by employers using the PAYE system do not match the information held on HMRC records.
This most often occurs when individuals change jobs, have more than one job at the same time, or because employers are using the wrong tax code.
In some cases officials say they will consider writing off demands for additional money if taxpayers can demonstrate they provided all the information necessary to calculate their tax correctly.
An HMRC spokesman told the BBC: "The overwhelming majority of PAYE cases - over 40 million - are right, so most people have paid the right amount of tax.
'Boost accuracy' "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."
John Whiting, from the Chartered Institute of Taxation, told the BBC that some of the poorest, including those who received means-tested benefits, could have been hit twice, as their benefits would have been incorrectly calculated.
"It is very difficult to go back and claim benefits you underclaimed, whereas, as demonstrated, if you owe tax it is possible for the revenue to back claim there," he said.
Mr Gauke said the government wanted to move sensitively and cautiously but he recognised the difficult situation some people were facing was "through no fault of their own".
He added: "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."
'Heartless' George Mudie, a Labour MP and member of the Treasury Select Committee, told the BBC he believed there was a case for waiving the debt owed by those who had underpaid.
He said he believed the HMRC had handled the situation badly and unfairly.
He described the HMRC as a "heartless" and "arrogant" organisation and said: "If they want money, they take the money and very rarely are they prepared to consider, even when they make mistakes, not taking the money."
Emma Boon, from campaign group the Taxpayers' Alliance, said the HMRC must take steps to help those told they have to pay more.
"Some of them won't be finding out about it for a few weeks or maybe even a few months, so it could be towards Christmas which really isn't what you want to hear," she said.
In June, the government ordered a review of how the PAYE system works and is encouraging the public to contribute their thoughts about how it could be improved.
------------------------------- merged -------------------------------
Q&A: Income tax system and you
HM Revenue and Customs is set to tell some six million people in the UK that they have paid the wrong amount of tax.
Between September and Christmas, HMRC says about 4.3 million taxpayers will receive rebates after paying too much through the Pay as You Earn (PAYE) system.
About 1.4 million will be sent letters telling them they have underpaid and need to make up the extra.
How might someone have under or overpaid income tax?
There are a number of reasons why people may have under or overpaid their tax. Your employer may have used the wrong tax code, you could have started a new job or you may have had an emergency tax code for a while. You may have only worked for part of the year or you had more than one job at the same time. You may not have told HMRC right away about changes to benefits you got through your work, or your circumstances changed. Perhaps you were made redundant or became self-employed and therefore your income reduced. Other income such as investments or rental income may have reduced but you didn't tell HMRC. It could also be that HMRC made a mistake with your tax.
How does PAYE work?
If you are an employee your employer will deduct income tax directly from your wages and pass it on to HMRC.
The amount deducted is based on your total taxable income taking into account any tax allowances and your individual tax code as provided by HMRC.
At the end of the financial year, HMRC compares the amount of tax it has received from each taxpayer with the amount it would expect to receive according to their tax code and income. Anyone on the wrong tax code could end up paying too much or too little.
Why have so many discrepancies occurred?
The PAYE system was originally devised around employers since at the time it was introduced many people tended to stay with a single firm for life. Until recently it was possible to keep an accurate record of employees but since the 1970s work patterns have been transformed with workers now often having many jobs during their lifetimes. Taxable benefits like health cover and company cars have complicated matters further.
In response the system was overhauled and in June 2009 a new IT system was introduced focusing on the employee. Where previously, all the data for an individual could be spread across as many as 12 databases, it is now all in one place.
An HMRC spokesman said the new system enables it to keep much more up-to-date records so initially more mistakes will be highlighted. However, in the future more people will pay the correct tax at the right time thus reducing the number of corrections.
How will I know if I am affected?
If you are one of the estimated six million people affected you will receive a letter from HMRC sometime between now and Christmas. The first 45,000 people will receive their letter, known as the p800, next week. The majority of these have paid more tax than they should but some 15,000 have not paid enough.
If I have underpaid, how will I pay the extra I owe?
In most cases, underpayments will be recovered during the the 12 months of the financial year 2011/12 through your salary. This will happen automatically, so you will not need to do anything unless you believe the information in your p800 letter is wrong. If so, you should contact HMRC.
HMRC say that in some circumstances they will consider writing off underpayments, but only if they are provided with sufficient evidence to prove that an individual did provide all the information needed to get their tax right and could have reasonably expected their PAYE deductions to be correct.
What if I cannot afford to repay the tax? Can I refuse to repay?
HMRC says that if someone genuinely can not afford to repay the tax , they should contact their local tax office. However, if a tax debt is legally due it should be paid.
If I have overpaid, how will I get the money back?
Money that was overpaid will be returned via your wages.
How can I find out my tax code and keep it up-to-date?
You will find your code on your P45 form, given to you by your employer when you stop working for them, which is why you should make sure you give that form to your next employer. If you have lost your P45 and want to find out your code you should contact your local Tax Office or ask your employer.
If you think your tax code is wrong or you think you may need to update it, you should also contact your Tax Office.
Sometimes when you start a new job your employer will put you on an emergency tax code until HMRC has worked out what it should be. While you are on this emergency code you may be over or underpaying the right tax.
BBC News - QA: Income tax system and you
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