One in six paying the wrong amount of tax

Her Majesty’s Revenue & Customs admitted last night that up to one in six people are paying the wrong amount of income tax.

These figures come just 9 months after the HMRC admitted the last tax fiasco where 5.8 million people had their tax affairs badly handled. In this latest drama, some 1.2 million workers and pensioners have discovered that they have paid too little tax and are being sent bills for an average of £600.

HMRC have been sending out tax demands to people to claw back the £720 million that they have undercharged people from April 2010 to April 2011. 164,000 pensioners were the recipients of such letters.

Not everyone has been undercharged however, as 3.5 million people who’ve paid too much income tax will be sent an average rebate of £340 from mid-July.

Last year 1.1 million people were sent demands for an average of £1027 for underpayment over two years and new computer systems were put in place to make sure a recurrence didn’t happen, with the Government promising that the errors were a one off.

The HMRC has a process called the ‘end of year reconciliation’ where they match up all of their files to see that people are paying the correct amount of income tax.  The UK previously had 12 different computer systems so discrepancies would often occur.

However, in 2009 a new computing system was put into place that cost £385 million.  This new system was supposed to smooth out all of the errors and ensure that taxpayers in the Pay As You Earn system (PAYE) would be charged the correct amount of income tax and national insurance.

In September 2010, the Government had to admit that some 5.8 million people had still had their tax calculated incorrectly between 2008 and 2010.  The Government is looking red faced again with a further 4.7 million tax payers having paid the wrong amount this year.

Most of these people are thought to be ones who have a number of different incomes, such as more than one job or pension plan.

Once the rebates have been paid back to people who overpaid last year, the HMRC will begin to recoup from those who underpaid, with the money owed being deducted from their salaries in the next tax year.

Last year the Government wrote off many people’s tax debts, with those owing less than £300 not being asked to repay anything.  However, this year tax bills as low as £50 will be recharged.

250,000 retired people saw their tax bills written off last year, but will not be so lucky this year.