HM Revenue & Customs (HMRC) has issued guidance for up to 1.4 million taxpayers who have underpaid PAYE due to incorrect tax codes.
It has been widely reported that around 1.4 million people had underpaid £2 billion through PAYE, an average of £1,500 each. Around 4.3 million people will receive a rebate from £1.8 billion in overpayments between April 2008 and April 2010.
The problems have arisen after HM Revenue & Customs (HMRC) implemented its new National Insurance and PAYE Service, allowing it for the first time to combine its records of individuals’ national insurance contributions with their income tax paid through PAYE. A computerised system introduced in 2009 has allowed more discrepancies to be identified.
People who have underpaid tax of less than £2,000 will generally be expected to pay what they owe via extra tax deductions via PAYE from April 2011 onwards. Those owing larger sums will need to make arrangements to pay the amount outstanding.
HMRC chief executive Dame Lesley Strathie has confirmed that people who owe more than £2,000 in tax would not have to pay interest if the tax authority gave them extra time to pay.
Before the concession, people had three months to pay up after which point they would be charged interest on the money owed.
Guidance issued by HMRC also says: “In cases of genuine hardship HMRC will allow payments to be spread across a period of three years.”
However, the guidance says that following media reports that underpayments of tax could be written off, “HMRC can consider writing off the underpayment only in certain circumstances”.
People who have overpaid will receive a full refund, HMRC says.