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Six million have paid wrong amount of tax

By Channel 4 News

Updated on 04 September 2010

Nearly six million people will be told in the coming months that they have been taxed incorrectly, with around 1.4 million expected to face demands to pay back money. Channel 4 News looks at who might be affected, and what they can do next.

Tax calculator. Nearly six million people will be told they coming months that they have been taxed incorrectly, with around 1.4 million expected to face demands for more money. Getty.

A total of £2bn has been underpaid by employees through the Pay as You Earn (PAYE) system over the past two years, meaning the 1.4 million taxpayers will be required to shell out an average of almost £1,500 each.

However, a similar sum - £1.8bn - has been underpaid to 4.3 million people. This means they could each get an average tax rebate of £418.

It is still unclear who will be affected: the first 45,000 letters from HM Revenue and Customs are expected to arrive on doormats on Tuesday.

Two thirds of these will bring the good news that people have overpaid and are due money back. But the remaining 15,000 will tell taxpayers they have underpaid and will have their tax code altered next year to recoup the money.

In some cases, it is thought that individuals may face both under- and overpayments, which could cancel one another out.

Millions more letters will go out by Christmas to the rest of those caught up in the blunders.

The problems arise because at the end of each year, HMRC checks that the amounts deducted in tax and national insurance by employers using the PAYE system match up with the information held on their records.

In the past, this was done manually on a case-by-case basis, but a new computer system has now been introduced to automate the checks.

Tax Q&A: what happens next?

When do people find out whether they have over or underpaid tax?
HMRC is writing to those involved between now and Christmas. The first letters should arrive on Tuesday.

Who is likely to be affected?
You might have under or overpaid tax if:
Your employer used the wrong tax code, you started a new job and had an emergency tax code for a while,you only worked for part of the year, you had more than one job at the same time, you didn't tell HMRC right away about changes to benefits you got through your work, your circumstances changed - perhaps you were made redundant or became self employed and therefore your income reduced, other income like investments or rental income reduced but you didn't tell HMRC or HMRC made a mistake with your tax.

Over what period will people be paying the money back?
Most people will have any underpayment taken out via their tax code during the next tax year - 2011-12.

Does everyone have to pay back the money?
HMRC can consider writing off the underpayment in certain limited circumstances. Basically these are if HMRC had been provided with all the information necessary to get their tax right and the taxpayer could have reasonably expected their tax deductions to be right. In these circumstances they need to contact HMRC and ask for the underpayment to be reviewed on that basis.

What if someone can't afford the repayment?
Talk to HMRC - it says it will do all it can to help if some one genuinely can't pay.

What happens if someone refuses to pay?
If a tax debt is legally due it should be paid. Again, HMRC says those with any concerns should talk to them.

How far back will the taxman look?
The current reassessments refer to the past two tax years: 2008-9 and 2009-10. If, however, you believe you may have underpaid tax in earlier years, HMRC told Channel 4 News they will reconsider your case on demand.

What advice does HMRC give to people who are worried about whether they will get a letter?
There is no need to worry, best wait to hear from us, read the letter very carefully when it arrives and contact us with any questions.

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