PAYE mistakes highlight tax system 'complexity'

7 September 2010

HM Revenue and Customs' concession that upwards of six million people have either underpaid or overpaid their tax during the past two years is a sign that the current tax regime is overly complicated, it has been claimed.

According to Chas Roy-Chowdhury, who is head of taxation at the Association of Chartered Certified Accountants (ACCA), said: "HMRC's recent announcement is worrying for many ordinary taxpayers. While it is important we pay the right amount of tax at the right time, it is also important that our tax authority bills us correctly and keeps correct records.

"This issue highlights the problems caused by the complexity of the UK's tax system. We also hear that millions of pounds are owed to those who do their own tax returns due to errors in the self assessment system. Self assessment taxpayers and employers are clearly having problems with tax codes. I know that many will be asking whether they can trust the UK's tax regime."

It has emerged that a proportion of the millions of taxpayers who have underpaid their tax because of the errors in the PAYE system could request that the sum be written off.

It is estimated that 4.3 million have paid too much and are entitled to a refund of around £400, while 1.8 million have underpaid to the collective tune of £2 billion which means an average tax debt of £1,428 each.

However, provided that the tax authorities received all the necessary information in order to assign a correct tax code for an individual, the rules insist that HMRC should have used the details within 12 months of the end of the tax year in which the information was sent to recoup the money owing.

Where that deadline is not met by HMRC, taxpayers can request an Extra Statutory Concession or ESC A19.

This could mean that HMRC may have to waive the outstanding sum.

The current crop of errors dates back to April 2008. So taxpayers who had supplied accurate information to HMRC on changes in their circumstances that would have affected their tax codes, and provided the details before the start of the tax year in April 2009, could be in a position to use an ESC A19.

HMRC expect any appeals to contain proof that taxpayers had indeed submitted the appropriate information; proof would involve letters or notes taken during phone calls with the tax body, and the names of the HMRC personnel with whom the taxpayer dealt.

An HMRC spokesman said: "We can consider writing off the underpayment in certain circumstances. Basically, these are if HMRC had been provided with all the information necessary to get their tax right and the taxpayer could have reasonably expected their tax deductions to be right.

"In these circumstances they need to contact HMRC and ask for the underpayment to be reviewed on that basis."

HMRC is now in the process of writing to all those who have been affected by the errors. Most should have been contacted by Christmas.

People who owe less than £2,000 will see the amount deducted from their pay packets each month during the 2010/11 tax year. Those owing more than £2,000 may have to make a lump sum payment to HMRC in January 2011.