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Less than one in five tax underpayments due to HMRC

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Only about 20 per cent of taxpayers who have already received or will get letters informing them that they have underpaid their tax through the PAYE system will have the sums written off.

Somewhere in the region of 1.4 million paid too little tax in the financial years 2008/09 and 2009/10 because of incorrect tax codes.

The underpayments came to light when HM Revenue and Customs (HMRC) introduced a new computer system aimed at reconciling tax payments and liabilities.

Previously, the checks had been made manually, comparing information from as many as 12 separate databases.

The 1.4 million who were discovered to have underpaid are now being written to by HMRC. The total sum owed for the two tax years in question could be as much as £2 billion.

Some 4.3 million taxpayers also overpaid their taxes, and they will be entitled to a rebate for a total amount of £1.8 billion.

Under a rule known as the extra-statutory concession, underpayments can be written off if it is shown that HMRC had accurate information about a taxpayer’s circumstances and the incorrect payment was made through an error on HMRC’s part.

However, Sarah Walker, HMRC’s director of PAYE, told an MPs’ public accounts committee that only a small number of the underpayments were the consequence of mistakes made by the tax authorities.

Ms Walker said: “At the moment, only a minority of the underpayments are caused by Revenue error, which would make them eligible for writing off under the concession.

“It is quite a small proportion – I think we would say it is less than 20 per cent – and then, of those, a proportion then will claim the concession and we will then write it off.”

HMRC explained that each request under the concession would be assessed on a case-by-case basis but stressed that it would apply only in limited circumstances.

As many as 900,000 demands for underpayments have already been dropped by the government because the sums involved are less than £300.

Those who owe more than £2,000 will not be required to pay interest on the amounts if they request extra time in which to pay.