8th September 2010: PAYE Tax Calculations - Recent News

Background

In June 2009, HM Revenue & Customs (HMRC) introduced a new IT system, which drew together data on individuals from across several databases.  The information is now all in one place.  As a result, it is far easier for HMRC to check if individuals have paid the correct amount of tax.

It is estimated that around six million people are about to be notified that they have paid the wrong amount of tax for the tax years 2008-2009 and 2009-2010.  HMRC are sending out the first batch of letters this week.  Most will have overpaid tax and will receive a repayment.  However, we anticipate that around 1.4 million people will have underpaid tax and HMRC will ask them to make up the difference.

In the main, the individuals affected will be those who were not required to submit personal Self Assessment tax returns for the years mentioned.

If you are one of the individuals affected, you will receive a letter including a tax calculation (P800).

Overpayments and Underpayments

If the calculation shows an overpayment, you will probably be more then happy and you should receive your refund within seven working days.

If the calculation shows an underpayment of tax of less than £2000, HMRC would normally collect it via an adjustment to your tax code for the next complete tax year.  For example, if the underpayment were £1200, you would pay an additional £100 per month on top of your usual deductions for the next tax year.

If the underpayment were more than £2000, HMRC would expect you to pay it back directly to them.  HMRC will tell your how they propose to collect the underpayment.

Extra Statutory Concession (ESC A19)

If HMRC failed to use information provided to them within 12 months after the end of the tax year in which they received it, and it was reasonable for you to believe that your tax affairs were in order, then you may be able to apply for waiver of the underpayment.

How we can help:

1.  Checking the tax calculations

2.  Correcting calculations and notifying HMRC

3.  Submitting any necessary appeals

4.  Arranging "Time to Pay" agreements

5.  Submitting claims under ESC A19

For further information or assistance, please contact Dawn Foden-Smith, Employment Tax Specialist.