During the past two years, approximately £2 billion of tax has been underpaid through PAYE and around £1.8 billion has been overpaid. Around 5.7 million taxpayers will be receiving letters from HMRC to tell them if they are due a refund or if they have underpaid tax. Where tax has been underpaid and the amount is less than £2,000, HMRC will collect the underpayment via and adjustment in the employee's tax code. Where the amount is more than £2,000, the amount underpaid must be repaid in a lump sum.
The errors came to light as part of the annual checks that HMRC carry out to ensure that the amount of National Insurance and PAYE deducted by the employer matches the information held on HMRC's computers. The new PAYE computer system ,which holds all employee records in one place, rather than in several systems, has improved the quality of the checking, resulting in more errors coming to light than previously.
PAYE is an imprecise science that relies on a tax code to collect the right amount of tax due. However, if an employee's circumstances, change, for example if he is given a company car or other benefits, it may be some time before HMRC catch up and the code is amended, resulting in an tax underpayment.
Anyone who receives a tax calculation from HMRC is advised to check it. Guidance on the HMRC website explains how to do this.
Where the correct information has been provided to HMRC and they have failed to use this to collect the correct amount of tax due, in some circumstances they my agree not to collect the tax underpaid. The circumstances where this approach may be adopted is set out in extra statutory concession A19. Guidance on the circumstances where ESC A19 is in point is available on the HMRC website. Anyone who has underpaid tax and who considers that they have provided all the correct information to HMRC should consider whether they are able to benefit from ESC A19.
Writetax Ltd are able to offer a tax calculation checking service. For more details, contact us by email at info@writetax.co.uk.