More tax letters to come, HMRC says

Dave Hartnett
Image caption Top taxman Dave Hartnett had to apologise for last year's flurry of letters to taxpayers

Up to 4.7 million taxpayers will be sent letters later this year telling them they paid too much, or too little, income tax in 2010-11.

HM Revenue & Customs (HMRC) says the letters will follow its annual reconciliation exercise.

This checks that people have paid the right tax via the PAYE system.

HMRC estimates that between 1.7 and 3.5 million people will be repaid an average of £340 each, while 1.2 million will owe £500-£600 each.

Last September, HMRC was severely criticised when it revealed that 5.7 million people had not paid the correct tax via PAYE for the years 2008-09 and 2009-10.

This led to about 1.4 million people having to pay an extra £1,428 each on average, while about 900,000 taxpayers had their debts of up to £300 written off.

Meanwhile 4.3 million people received cheques for overpayments.

Greater accuracy

HMRC explained at the time that the large number of apparent errors had been uncovered by a new computer system.

This was now used to compare data about taxpayers' incomes and employment histories which previously had been kept on 12 separate databases.

The effect of using a more accurate system was to reveal errors in past calculations.

"The computer system is now working very well," said an HMRC spokesman.

"It is faster and more accurate than the systems we used in the past."

If the HMRC estimates are right, nearly £1.2bn may have to be repaid by the tax authorities, while an extra £720m may need to be collected.

Last year's concession, in which bills for unpaid tax of less than £300 were written off, will not continue, and tax will now be collected from anyone owing £50 or more.

Letters and demands

The reconciliation exercise for 2010-11 will take place in late July.

HMRC expects that cheques for people previously overtaxed will be sent out in August and September.

Calculations for those who appear to owe money will be sent in batches after that, with the last going out in December.

Taxpayers faced with a bill will have time to challenge the calculations if they think they are wrong.

But if they still have to pay then the money will be taken from their earnings each month via a change to their PAYE tax code for 2012-13.

Up to £3,000 per individual will be collected this time via PAYE , more than the previous limit of £2,000.

"We expect that hardly anyone will be faced with a bill larger than £3,000, but if they want to pay us in one go by cheque they can," said the HMRC spokesman.

'Take an interest'

The Chartered Institute of Taxation (CIOT) advised people to check any letters from HMRC carefully.

"PAYE sorts most things for most people, but end of year reconciliations are always going to be needed to finalise the tax situation of a lot of people," said John Whiting, the CIOT's tax policy director.

"People need to take an interest in their tax situation, especially if they are moving in and out of work or have multiple or erratic sources of income."

In January it emerged that the PAYE errors stretched even further back than first thought.

An extra 450,000 people were told to pay more income tax, totalling £180m, because their tax codes had been recalculated for 2007-08.

Meanwhile 250,000 state pensioners had their newly discovered tax underpayments written off altogether for the years 2008-09 and 2009-10.

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