Find out whether you're in line for a rebate or a big bill from the tax man - and what you can do about it.
It’s estimated that over 5.7 million people will be affected in some way by HMRC's big tax blunder.
4.3 million of these are have paid too much tax and will be due a rebate However, a further 1.4 million have paid too little tax over the past 2 years and instead owe the tax man money.
Will I be affected?
While there is no way to know for sure whether you paid too much or too little tax over the past 2 years, you’re more likely to be affected if:
- You have changed jobs
- You have a second job
- You receive a benefit-in-kind like a company car or private healthcare
- You receive income from a number of pensions or savings accounts
- Your income/earnings have changed significantly in some other way
It’s worth noting that the vast majority of workers will have paid tax at the correct rate and will not be affected. This is particularly the case if you only have one job in the past 2 years and have not seen any significant increases or decreases to your earnings. Similarly, if you complete your own self-assessment tax return you’re unlikely to be affected.
When will I find out for sure?
HMRC are notifying each individual affected by the blunder by mail. The first round of letters should arrive today, with the remainder being sent between now and Christmas. Unfortunately it’s a case of waiting to see whether you are in line for a surprise rebate, or an unexpected tax bill.
If you don’t receive a letter by the end of the year it simply means that your tax payments have been calculated correctly all along.
Will I receive a refund if I’m owed money?
If you’ve paid too much tax during the past 2 years you will receive a rebate and you don’t need to do anything to claim this. HMRC will write to you stating how much you are owed and you should then simply receive a cheque within 7 days.
It is still worth making sure that they have their calculations right so check that they have your income, benefits and tax allowance (the amount of money you can earn before you start paying tax) correct on the form they send you and notify them if anything looks untoward.
Will I need to repay the shortfall?
If you have paid too little tax over the past 2 years you will be asked to make up the shortfall.
If you owe less than £2,000 then the extra will be deducted from your salary during the 2011/2012 tax year. While if you owe more than £2,000 you will be asked to make a lump sum payment by 31st January, 2012.
HMRC have set the repayment threshold at £300 so if you owe less than this you won't be required to pay anything extra.
If you overpaid one year but underpaid tax the other you will receive 2 separate letters from HMRC. However, you will only need to pay the difference between the two amounts. This will either be in a lump sum (if you owe more than £2,000) or through deductions from your salary.
Can I appeal?
Yes, it is possible to appeal HMRC’s claim for payment if you have reasonable grounds to do so.
The first thing you should do if you receive a letter (it’ll be a form called a P800) is check that your income, benefits, expenses and personal allowance are stated correctly. If there are any discrepancies let HMRC know as soon as possible.
If you are asked to make up a shortfall for the 2008/2009 tax year then it is definitely worth lodging a query. This is particularly the case if HMRC had all the information they needed to calculate your tax code correctly at the time but didn’t. Write to HMRC asking them to reconsider their request for payment in view of the A19 Extra Statutory Concession and explaining that you were under the impression you were paying the correct amount of tax all along and didn't have reason to believe otherwise.
Similarly, if you believe that the underpayment error was down to a mistake made by your employer or pension provider then you should contact HMRC explaining this. They will then need to investigate and if they find that your employer was at fault, approach them for payment instead.
Why has this happened?
The issue is with the PAYE (Pay As You Earn) system used by most employers to calculate and deduct tax and National Insurance contributions from their employees’ salaries.
The amount of tax you pay is is based on a tax code provided by HMRC which specifies your tax free allowance each year. Errors in HMRC’s computer system meant that many were being allocated the wrong tax code and as such paying too much or too little tax.
The issue has only surfaced now as HMRC have updated their computer systems and as a result have identified widespread discrepancies between the amount of tax people should have been paying, and the actual amount they have been paying.
You can find out more information about the P800 letters that HMRC will be sending out, and a full explanation of how to check that they detail the correct information on their website.
