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Six million people in UK have overpaid or underpaid tax Six million people in UK have overpaid or underpaid tax
(about 4 hours later)
Nearly six million people in the UK have paid the wrong amount of tax.Nearly six million people in the UK have paid the wrong amount of tax.
About £2bn was underpaid via the Pay as You Earn (PAYE) system in the past two years, with about 1.4 million people owing an average of £1,500 each.About £2bn was underpaid via the Pay as You Earn (PAYE) system in the past two years, with about 1.4 million people owing an average of £1,500 each.
But £1.8bn has also been overpaid and some 4.3 million people will get a rebate because they have paid too much.But £1.8bn has also been overpaid and some 4.3 million people will get a rebate because they have paid too much.
A new computer system has allowed more discrepancies to be identified, but HM Revenue and Customs said the "vast majority" of tax bills were correct. Treasury minister David Gauke said that in the current financial climate, the government was "not in a position to just wave goodbye to that £2bn".
The number of people affected by over or underpayments is also higher than usual because HMRC is currently reconciling two years of PAYE contributions at the same time, rather than just one. He said the government had inherited the problem and the PAYE system - which was created in the 1940s - was struggling to cope with modern working patterns.
Notification lettersNotification letters
The new computer system was introduced by HMRC in 2009 to cope with changing working patterns. A new computer system introduced by HMRC in 2009 has allowed more discrepancies to be identified.
In the past, when most employees would stay with a single company for life, it was easier for information on required contributions to be kept up-to-date. As a result millions of letters will be sent to taxpayers across the UK informing them of errors in their contributions.
But a new era in which individuals hold a succession of jobs and often receive taxable benefits like company cars meant the system had to be overhauled.
Millions of letters will be sent to taxpayers across the UK informing them of errors in their contributions.
The first 45,000 are expected to arrive on Tuesday, with 30,000 informing recipients they are due a rebate of on average £418.The first 45,000 are expected to arrive on Tuesday, with 30,000 informing recipients they are due a rebate of on average £418.
The remaining 15,000 letters will tell taxpayers they have underpaid and will have their tax code altered next year to recoup the money.The remaining 15,000 letters will tell taxpayers they have underpaid and will have their tax code altered next year to recoup the money.
It is thought that some individuals may face both underpayments and overpayments, which could cancel each another out.It is thought that some individuals may face both underpayments and overpayments, which could cancel each another out.
Discrepancies arise when the amounts deducted in tax and National Insurance by employers using the PAYE system do not match the information held on HMRC records.Discrepancies arise when the amounts deducted in tax and National Insurance by employers using the PAYE system do not match the information held on HMRC records.
This most often occurs when individuals change jobs, have more than one job at the same time, or because employers are using the wrong tax code.This most often occurs when individuals change jobs, have more than one job at the same time, or because employers are using the wrong tax code.
In some cases officials say they will consider writing off demands for additional money if taxpayers can demonstrate they provided all the information necessary to calculate their tax correctly.In some cases officials say they will consider writing off demands for additional money if taxpayers can demonstrate they provided all the information necessary to calculate their tax correctly.
'Boost accuracy''Boost accuracy'
An HMRC spokesman told the BBC: "The overwhelming majority of PAYE cases - over 40 million - are right, so most people have paid the right amount of tax.An HMRC spokesman told the BBC: "The overwhelming majority of PAYE cases - over 40 million - are right, so most people have paid the right amount of tax.
"But for a variety of reasons in some cases there will be a discrepancy."But for a variety of reasons in some cases there will be a discrepancy.
"The government accepts that the way we go about deducting tax at source needs to be much more accurate and the introduction of the NPS [computer system] paves the way for a real time system which in turn boosts accuracy.""The government accepts that the way we go about deducting tax at source needs to be much more accurate and the introduction of the NPS [computer system] paves the way for a real time system which in turn boosts accuracy."
John Whiting, from the Chartered Institute of Taxation, told the BBC that some of the poorest, including those who received means-tested benefits, could have been hit twice, as their benefits would have been incorrectly calculated.
"It is very difficult to go back and claim benefits you under-claimed, whereas, as demonstrated, if you owe tax it is possible for the revenue to back claim there," he said.
Mr Gauke said the government wanted to move sensitively and cautiously but he recognised the difficult situation some people were facing was "through no fault of their own".
He added: "At the moment we have said that those who owe more than £2,000 - those who are obviously in the most difficult position - we're reviewing exactly how we're going to do that.
"For those who owe less than that we will be seeking to recover that over the course of the 2011/2012 tax year through tax codes."
Emma Boon, from campaign group the Taxpayers' Alliance, told the BBC the HMRC must take steps to help those told they have to pay more.Emma Boon, from campaign group the Taxpayers' Alliance, told the BBC the HMRC must take steps to help those told they have to pay more.
"They've got to enter into some sort of dialogue, work out some sort of repayment structure to pay that money back at a pace they can afford," she said. "Some of them won't be finding out about it for a few weeks or maybe even a few months, so it could be towards Christmas which really isn't what you want to hear," she said.
"Families are struggling with the rising costs of living at the moment and this is the last thing they need.
"Some of them won't be finding out about it for a few weeks or maybe even a few months, so it could be towards Christmas which really isn't what you want to hear."
In June, the government ordered a review of how the PAYE system works and is encouraging the public to contribute their thoughts about how it could be improved.In June, the government ordered a review of how the PAYE system works and is encouraging the public to contribute their thoughts about how it could be improved.
Have you had problems with the Pay as You Earn system? Are you an accountant or financial advisor? Do you work for HM Revenue and Customs? Send us your comment using the form below.