450,000 face tax shortfall demand


Nearly half a million people will face a further demand for underpaying income tax through the pay as you earn scheme

A further 450,000 people will collectively face demands for £180 million from HM Revenue & Customs after underpaying tax through the pay as you earn system, a minister has said.

The latest batch of underpayments relates to the 2007-08 tax year, and comes on top of the six million people who underpaid or overpaid tax because of errors in their tax code during 2008-09 and 2009-10.

HMRC will write off tax owed when the sum is less than £300, while it will allow other taxpayers to have the money deducted from their salary during the coming year where possible.

It has also emerged that 250,000 retired people had underpaid tax on their state pension after a tax adjustment code was not applied during the 2008-09 and 2009-10 tax years. But Exchequer Secretary to the Treasury David Gauke said that the outstanding tax these people owed would be written off.

In a written ministerial statement, he said the pensioners, who have not yet been issued with a notice of underpayment, would not have to claim the concession individually, but would instead have the money written off automatically.

An HMRC spokeswoman said: “HMRC has committed to closing off old tax cases as quickly and accurately as possible. This means most people will get repayment cheques, but a minority will have some tax to pay. This is only fair and will enable us to move forward to a more accurate and responsive tax system.”

HMRC came in for heavy criticism in September last year when it emerged that six million people had paid the wrong amount of tax due to errors in their tax code for the previous two tax years. Around 1.4 million people will be required to pay an average of £1,500 each to make up the shortfall, while a further 4.3 million will receive rebates of around £418.

The high number of discrepancies was thrown up due to the use of a new IT system, which holds all the information on an employee in one place, rather than having it spread over several different systems. Mr Gauke said that HMRC had been working hard to clear the long-standing backlog of unreconciled cases, and since September it had made rapid progress in working through them.

He said by the end of last year people had received either a refund notice or a calculation of how much tax they owed in 90% of cases where HMRC had received all the information it needed. In cases where tax is due, HMRC has taken a “flexible and sympathetic approach” to collecting it, he said.

Mr Gauke added that HMRC was also working to clear the backlog of unreconciled tax cases from earlier years, but would not be chasing people for unpaid tax for periods before the 2007-08 tax year, although it would offer refunds to people who had overpaid.

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