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Extra income tax bills for 450,000

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Some additional 450,000 taxpayers will be landed with a higher than expected income tax bill after their tax codes for the financial year 2007/08 have been readjusted.

The collective bill will come to £180 million and forms part of HM Revenue and Customs’ efforts to clear the backlog of miscalculated tax bills.

The 450,000 increased bills are on top of the six million people who were told before Christmas that errors in tax codings mean that their payments for the years 2008/09 and 2009/10 will need to be altered.

However, no extra charges will be allocated to income tax bills for the years preceding 2007/08. But should anyone have been overcharged before that date as a result of incorrect tax codings, then a refund will still be available.

There was some good news for pensioners in the Treasury announcement. A quarter of a million state pensioners are to see tax debts from 2008/09 and 2009/10 written off under the extra-statutory concession (ESC) A19 because HMRC did not act promptly on information the tax authority had already received. These latter tax underpayments have only recently been unearthed.

The information was given by David Gauke, the Treasury Secretary, in a written Commons statement.

Mr Gauke announced: “By the end of last year in 90 per cent of cases where HMRC had received all relevant information, customers had received a refund notice or a calculation of overpayment in respect of these years.

“In the minority of cases where the unexpected bill has been caused by HMRC’s failure to act promptly on the information received, HMRC have considered claims to be written off under an existing concession. Further underpayment notices will not be issued for years earlier than 2007-08.”

Referring to the pensioners, Mr Gauke added: “These pensioners have not yet been issued with a notice of underpayment but would have a strong case for their underpayment to be written off in line with the [extra statutory] concession.

“HMRC will not require these pensioners to claim the concession individually, but will instead write off all the relevant underpayments.”

In other cases, the money owed HMRC for 2007/08 through underpayments of income tax will be recouped by adjusting tax codes and collecting the sums throughout the 2011/12 tax year.

Mr Gauke confirmed that HMRC will not chase underpaid sums of less than £300 due from 2007/08 and that taxpayers facing hardships will be allowed to spread their repayments.

Errors in the tax coding system came to light last year when HMRC switched to a new computer regime.

The change-over meant that information stored on several different databases were consolidated in a single area. Previously, the details of individual taxpayers had been checked and cross-referenced manually, with miscalculations occasionally the result.

It has been estimated that some 4.3 million people paid too much income tax in the years from 2008 to 2010, while 1.4 million paid too little tax for the same period.

Refunds are averaging £400 per taxpayer; recouped payments, £1,428.

John Andrews, the chairman of the Low Incomes Tax Reform Group, said: “It is pleasing that HMRC took on board our suggestion to review this group of pensioners for whom extra-statutory concession A19 would almost certainly have applied to write off the liability. This way the worry and hassle has been avoided.

“It is less good news for those who will be caught with a potential liability for 2007/08. Many such taxpayers receiving a demand for that year will have a good case to resist the collection of the liability. LITRG will be posting full guidance on its website for those who receive such notices.”