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Hmrc Faces £1.6bn Hit On Incorrect Tax Codes

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About 4.5 million workers are owed hundreds of millions in tax because of incorrect codes handed out by HM Revenue & Customs.

There were 20 million queries about tax codes in March this year, up from around 16 million last year, HMRC accounts published earlier this week show.

The scale of the problem could force HMRC to pay back £1.6 billion to around 4.5 million people who unwittingly had too much tax deducted from their paypacket, the National Audit Office has estimated. A further 1.5 million people are tipped to have underpaid by £400 million as a result of having the wrong tax code.

Each of the 26 million employees in the UK has a tax code, although some have more than one.

Angela Beech, head of personal tax at Blick Rothenberg, the accountant, said: “These figures are horrific. It is unbelievable that so many people have not paid the right amount of tax, and it is sometimes difficult for them to claim this money back.â€

This will come as an added embarrassment for the Revenue which was criticised by MPs last month over the sums owed to it by individuals and companies. Nearly one in ten taxpayers pay taxes late and around £17 billion was owed to the taxman at the end of March last year, a report by the Public Accounts Committee showed.

Tax codes are used to advise employers how much tax to deduct from their employees pay packet. The Revenue is trying to tackle 20 million “open cases†where a taxpayer raises concerns that they have the wrong tax code or where HMRC calculates that the tax deducted by employers does not tally with the total sum owed. In its accounts, HMRC said that the problems were “generated by an increasing number of coding discrepancies caused by changing customer work patterns.â€

However, the Revenue, which is introducing new computer systems to try and cut down on the discrepancies with tax codes, said that it estimated that around 77 per cent of cases would be tax neutral. It added that those affected would be notified that their tax code was changing to take into account the amount of tax they had overpaid or underpaid.

Unbelievable in the great scheme of things the tax owed outweighs the over payments however there is no guarantee the tax owed will received.

Is this down to increasing numbers now working part time?

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[ex HMRC person]

Open cases aren't where the taxpayer raises a query, they're where the computer raised a query.

It will be October before the P14s have been processed onto individual records, and this will close most of them automatically. Of the remainder the very greatest majority will owe nor be owed nothing, as PAYE has a fantastic habit of managing to collect the right amount of tax even when HMRC don't know where the person is working.

The rest will be about the normal number of queries they get each year. They need a new computer system to sort it out as the current one lives in the 80s, when people had simpler employment patterns. However I suspect they will get something that will in fact make things much worse...

They probably aren't owed half of the £17bn. When people don't fill in a return they make up a number so they have something to chase, and a bug number so the person doesn't decide to pay a smaller amount than is due. A lot of this will be accounted for by those cases.

Edited by mikeymadman

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