Taxpayers face potential £600 repayments
HM Revenue & Customs is about to start sending out letters to taxpayers who have either over or underpaid their tax for the last year.
As part of its annual reconciliation exercise, letters will start dropping through letterboxes at the end of July. HMRC will inform those who have underpaid first. It estimates between 1.7 million and 3.5 million have paid too much income tax in 2010/11.
The average repayment is £340 and taxpayers won’t have to take any action, says an HMRC spokesperson: "They will receive a letter telling them they are owed a repayment and then in the next two weeks or so they should receive a cheque, which will be a welcome boost, in the post."
HMRC will then address those it believes still owe tax. The average underpayment is between £500 and £600 and will be collected through the PAYE system in the tax year 2012/13.
"Working patterns are changing and for many it’s a case of not realising what they should have paid tax on," explains a spokesperson.
Anyone who owes less than £50 won’t be notified. This represents a significant drop from last year’s £300 cut-off point.
"The law as it stands gives HMRC complete discretion as to whether to collect any overpayments and if so, how much," explains Paul Hutchinson, tax expert for Hutchinson Legal & Associates.
Hutchinson says that, ultimately, HMRC’s freedom to raise and lower the level of accepted tax repayments "only ever leads to uncertainty and the inevitable consequence is that large portions of the public will lose out".
However, keen to reassure taxpayers, an HMRC spokesperson said: "There are 40 million people in the PAYE system and about 85% have paid the correct tax, so the vast majority of people have nothing to worry about."
Read: check you're on the right tax code
HMRC also came under fire for its tax collection system last year, when it was revealed that 5.7 million people had paid incorrect tax during the past two tax years, forcing many taxpayers to repay an extra £1,400.
The tax regulator said that many of the errors were due to an old computer system and argued that newer technology will lead to greater accuracy.
Used by an employer or pension provider to calculate the amount of tax to deduct from pay or pension. A tax code is usually made up of several numbers followed by a letter. If you replace the letter in your tax code with ‘9’ you will get the total amount of income you can earn in a year before paying tax, for example 747L would mean a person could earn up to £7,479 before paying tax. The wrong tax code could mean a person ends up paying too much or too little tax.