Will the tax errors have an impact on your finances?

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By Luke Jovetic
Know Your Money Editor

HM Revenue and Customs (HMRC) has recently admitted some miscalculations of tax ranging back over six years.

But how likely are you to be affected?

According to figures, millions of people in the UK may find their finances impacted in some way.

Errors were discovered after a trawl by the Treasury of the way HM Revenue and Customs was calculating pay as you earn (PAYE) tax.

Good or bad news?

Whether the news is good or bad will depend on whether you are adjudged to have overpaid or underpaid in terms of contributions.

The report stated many of those affected "may not be aware that they have overpaid tax and are due a refund or, where they have underpaid, that they are liable to make further payments".

It went on: "The amounts involved are substantial, which early analysis suggests could in aggregate lead to tax repayments and recoveries of £3bn and £1.4bn respectively."

Around 4.3 million are thought to have paid too much and are due a refund, worth £1.8 billion, while 1.4 million had underpaid a total £2 billion and will have to pay an average of £1,428 each in further tax.

Expert opinion

Angela Beech, of chartered accountants Blick Rothenberg, told: "The fact that it will take at least four years to clear the backlog means that no one can rest easy thinking that their tax position is correct.

"About half of the population could be affected. It's an absolute debacle.This can only lead to low morale within HMRC - perhaps David Hartnett [permanent secretary for tax] will roll up his sleeves and help his fellow workers."

What should you do if it impacts you?

Not everyone will be affected, but those who are may wish to ensure the Tax Calculation they receive is accurate.

It may be wise to check HMRC have got all the facts right, making sure it states the right jobs and the correct pensions.

People should also check the figures on the calculation against their records if they have them. Notes will be sent with the calculation and they should be read as they may help people to understand what it means.

If for some reason the calculation seems incaccurate then HMRC can be contacted on 0845 3000 627.

Siobhan Harding from the Belfast Telegraph advises: "Some people will receive notification that they have paid too little tax. If the amount owed is under £2,000, HMRC will automatically collect the money from a person's pay during the tax year 2011/12.

"This spreads the repayment throughout the year but it is possible to ask to pay it back over a longer period of time if this would cause hardship. If the amount owed is £2,000 or more, HMRC will write and ask for a lump sum payment but this can be paid back in installments rather than all in one go in cases of hardship."

She added those who receive notification that they have paid too much tax should still check their calculation carefully to ensure that they have been paid back the correct amount of money.

The news means a number of people could be at least £100 a month worse off at a time when household budgets are set to feel a considerable squeeze.

VAT is set to rise to 20 per cent in January while the Bank of England has warned that workers face a period where inflation is going to outstrip any wage rises.

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