Unwelcome Tax Demands For Employees

Up to 1.4 million taxpayers are expected to receive an unwelcome surprise as HMRC are in the process of issuing calculations of PAYE underpayments for the last two tax years.

The underpayments, some of which run into thousands of pounds, but with and average of approximately £1,400 are a result of incorrect tax codes being operated against their pay. The errors have come to light due to the checking of individuals’ liabilities by HMRC after the introduction of their new NPS computer system. Those individuals who have underpaid tax of less than £2,000 will generally be expected to repay the unpaid tax via extra tax deductions from their pay from April 2011 onwards. Those with larger sums due will need to make arrangements to pay the amount outstanding. Dame Lesley Strathie, HMRC chief executive, announced during her appearance at the Treasury committee that HMRC was dropping plans to charge 3% interest on the larger amounts of underpaid tax due. According to the HMRC guidance “Those who have underpaid will make additional payments through the PAYE system, provided the payment due is under £2,000. All payments will begin next year, and no immediate, one-off payment will be required. In cases of genuine hardship HMRC will allow payments to be spread across a period of three years. If the payment due is over £2,000, HMRC will write to the individual again setting out the next steps for repayment.” A significant number of taxpayers, approximately 5.8 million of them, are also expected to receive a cheque for a repayment of overpaid tax. The average amount overpaid being £400.