15 million affected by HMRC blunder


A huge mistake by Her Majesty’s Revenue and Customs has led to a massive number of people, around 15 million, paying the wrong amount of tax due to incorrect tax codes.

Worryingly, many people who have paid more tax than they were supposed to will be left with a gaping hole in their pocket until HMRC see fit to rectify the blunder, with pensioners thought to be hit hard due to their already complicated tax code system.

News of the tax gaffe emerged earlier this year in January, but HMRC have now fessed-up and divulged the exact figures of the error. According to National Audit Office files sourced by the accountants UHY Hacker Young, HMRC amassed a whopping £238 million in extra tax from the UK taxpayer via PAYE during the tax year 2009-10, almost £100 million more than in the year prior.

This mass-mistake has been attributed to a new computer system that was implemented by the taxman. The new system merged information of PAYE and national insurance contributions, and HMRC had previously admitted that the new system was proving to be “difficult”.

Examples of the type of mistakes that have led to extra tax being paid include: personal tax allowances vanishing, inexplicably placing people on higher tax codes, and in some cases even placing a phantom ‘1’ in front of people’s salary amounts, leading to an inflation of their taxable income by £100,000.

HMRC are thought to have reviewed the cases of about nine million of the affected, but there are still about 15 million people yet to be reimbursed. British expats who have British pensions are also thought to have been affected, and they may not even know as their contact with the UK taxman will have been minimal.

HMRC’s 2009-10 documents state that: “Sorting out the mess caused by these errors can be incredibly time-consuming. The phased release of the new (computer) service also meant that the functionality to support the automated reconciliation of individuals' PAYE records was not available to the department between July 2009 and April 2010.”

Published recently in July, the account documents continue with: “Although it set up a process to manually open cases going out of date, it was not able to work on the bulk of the backlog of 18.2 million unreconciled cases from 2007-08 and previous tax years affecting about 15 million people. Many of these may not be aware that they have overpaid tax and are due a refund or, where they have underpaid, that they are liable to make further payments. The amounts involved are substantial, which early analysis suggests could in aggregate lead to tax repayments and recoveries of £3bn and £1.4bn respectively.”

According to the Chartered Institute of Taxation there are a number of warning signs that point to having the wrong tax codes. These include having two codes if you have just one job or a private pension, having a code that doesn’t refer to your current job, or if you are under the age of 65 but your code isn’t 647l.