The Taxman will be recalculating the PAYE paid by many millions of people for the tax year 2010-11 and for the tax years 2003-04 to 2007-08. The PAYE system does not cope well when an individual has employment or pension income from a number of different sources at the same time. Sometimes the tax free personal allowance gets double counted, or not counted at all. Taxable benefits may get missed or not updated when the value of the benefit changes part way through the year.
The systems checking these tax calculations found about 2.3 million people who paid too much tax for 2010-11. Those taxpayers have been receiving letters about tax refunds since July.
The Taxman also plans to send out another 6 million letters about tax refunds due for the earlier tax years: 2003-04 to 2007-08. If you receive a telephone call or email purporting to be from the tax office about a tax refund, DO NOT to respond as this will be a criminal scam. Genuine tax refunds will be sent by letter only.
Around 1.2 million people will receive a tax computation (form P800) telling them they have underpaid tax for the tax year 2010-11. The average amount owing is £600. Where the tax due is less than £3,000 it will be collected through the taxpayer’s PAYE for 2012/13. If you have underpaid tax of less than £3,000, the amount due will be deducted in instalments from your monthly salary or pension in the year starting 6 April 2012. Only where the amount due is £3,000 or more will you be sent a tax demand, but you will still be given a reasonable time to pay.