Extensive coverage over the last few days for HMRC’s revelation that 5.7 million people have been paying the wrong amount of tax over the last two years.
The news broke on Friday with the apparently low-key news that HMRC were about to ‘start to use automated end of year reconciliation functionality on the National Insurance and PAYE Service (NPS)’ for the 2008-9 and 2009-10 tax years. But it soon became clear that, rather than this being a small, technical process it was something that will affect nearly six million people who will receive letters between now and Christmas.
Around two-thirds will be told they have paid too much tax and that they are now due refunds totalling £1.8bn. However, the one third of workers receiving letters demanding that they make additional payments to HMRC have, on average, seen larger mistakes accrue on their accounts and collectively owe a total of £2bn. HMRC will start recouping the £2bn from next April. It means many people could be at least £100 a month worse off.
More than 45,000 will receive their letters from HMRC this week.
Why is this happening now?
It is all about the new NPS computer system. Two years worth of tax records have been run through the system and it has identified many discrepancies between taxpayers’ earnings and tax contributions.
This is different from the tax codes mess that was in the papers earlier in the year. That was all about new errors (people being given wrong tax codes) as a result of bringing together separate data records in a less than perfect manner. For example, many jobs were ‘re-activated’ meaning that people found their tax-free personal allowances assigned to jobs they no longer had (and were therefore being asked to pay tax on more of the earnings from their current job than they should have been). The new issue is the traditional end of year 'reconciliation' tax records but supercharged as two years worth of records have been processed all at once.
The new database is undoubtedly a step forward, but it is a shame that the process of moving over to it is proving so messy.
One of the CIOT’s key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities. With this in mind the CIOT and our Low Incomes Tax Reform Group are doing all we can to help in the current situation. We helped the Government identify the problems with the tax coding notices issued for this financial year. Now we are doing all we can to help people understand what they should do, and what rights they have, if they receive a letter from HMRC about tax from previous years. This includes an excellent 14 page guide produced by LITRG.
Posting by George Crozier, CIOT External Relations Manager
