Paying the Wrong Amount As You Earn?
Almost four million employees paid the wrong amount of tax last year, according to a new report from an influential financial watchdog.
That is almost one in ten of all working people who pay taxes on a Pay As You Earn (PAYE) basis.
At the same time, it should have refunded £295 million in over-payments – but failed to let the affected parties know.
The report was produced by the National Audit Office (NAO), on the Inland Revenue's annual accounts for last year.
The NAO's head, the comptroller and auditor general Sir John Bourn, warned that there are "significant and widespread errors in PAYE".
The report puts the bulk of the problem down to the tax codes of people with more than one source of income. People with more than one job do not have a single PAYE account with the Inland Revenue, and are dealt with by different systems and teams, which – the NAO contends – fail to communicate effectively with one another.
In addition, even more confusion has been caused by tax credits. The report warns that some taxes owed have not been pursued while tax credit errors have been dealt with.
The Inland Revenue – now united with HM Customs and Excise in HM Customs and Revenue - has acknowledged the criticism, and admits that these problems can only be addressed by "structural change over the longer term".
A tax code comprises three digits and a letter.
The digits are the personal allowance you are entitled to earn without paying income tax, divided by ten. For most people, the personal allowance is £4,895 per year – so the three digits are 489.
Benefits received in kind, such as company cars etc, are deducted from this personal allowance, and so affect the tax code.
The letter refers to your "status": "L" refers to a basic allowance, "T" denotes the inclusion of other items, and "K" indicates those whose deductions exceed their allowance.
All of your deductions will be listed on a form P11D, which your employer can provide you with. You should check this to ensure that you are actually receiving the benefits the tax man thinks you are, and at what rates they are being taxed.
If you think there is anything wrong, experts advise that you contact your tax office. Check this on your form P60, which is issued to you by your employer in April: remember, the tax office that deals with your case may not be the one nearest to where you live!
Robin Newman of tax advisers Grant Thornton told Thisismoney: "Expenses incurred on company business should have no tax implications, but sometimes they are put down wrongly as deductions or allowances."
He added: "Don't put it off. It's crucial to get your tax code amended before the end of the tax year."
Opposition politicians have hit out at the NAO's discovery. Liberal Democrat treasury spokesman Vincent Cable described the situation as "shocking", warning that "the PAYE system is incapable of dealing with over 10 per cent of all income taxpayers correctly."
