HM Revenue & Customs (HMRC) has revealed that as many as 4.7 million people didn’t pay the right amount of tax during the 2010-11 tax year.
This is bad news for roughly 1.2 million people who underpaid through the pay as you earn (PAYE) system – these individuals owe between £500 and £600 on average according to HMRC estimates, which amounts to a total debt of approximately £660 million.
The majority of people who paid the wrong amount actually overpaid, however, with between 1.7 million and 3.5 million people estimated to be in line for a rebate. The average figure for overpayment is expected to be around £340.
Each year, HMRC compares the amount of tax and national insurance deducted by employers with the data on its own files. Last September, a new IT system revealed millions of inconsistencies, and around 1.4million people had to pay back an average of more than £1,000.
The people most likely to have paid the wrong amount of tax are those who have moved jobs, started earning a second income, or received a new employment or retirement benefit they weren’t previously getting.
HMRC will begin checking employer data against its own records from mid-July – people eligible for a refund can expect to receive it by the end of September. The majority of those who have underpaid won’t be billed – they will have their tax code changed so that what they owe can be deducted from their salary over the next tax year.
Last year, HMRC wrote off any debts below £300 due to its own errors, but this year the threshold has reverted back to the default £50. Anyone who can’t afford to repay HMRC has been invited to contact them and discuss possible arrangements.