Millions paid wrong tax after calculation error

London: Nearly six million people in the UK are to be told they have paid the wrong amount of tax, with some facing bills demanding up to £5,000 (Dh28,327) in extra payments.

Around 1.4 million people will be told they owe an average of £1,400 because of errors in HM Revenue and Customs' calculations of the pay as you earn (PAYE) tax system over the past two years.

The errors were identified by a new computer system that found widespread underpayments by employers through the PAYE system, which total about £2 billion.

Employees who moved jobs or accepted company cars or cash benefits from their employer were the most likely to be caught by the new system.

But 4.3 million people are set to receive a rebate because they have paid too much. With a total overpayment of £1.8 billion, each could receive an average rebate of £418.

The first 45,000 letters from HM Revenue and Customs (HMRC) are expected to arrive on doormats on Tuesday.

30,000 letters

Around 30,000 letters will alert taxpayers that they are due a rebate and 15,000 will inform them that they have underpaid and will have their tax code altered next year to retrieve the money.

With an average additional payment of £1,428 being demanded, those affected by underpayments could be more than £100 a month worse off next year while the cash is recouped.

It is believed that in some cases individuals may have both underpaid and overpaid, and the amounts could cancel one another out.

In some cases, HMRC will consider writing off demands where taxpayers can demonstrate that they provided all the information necessary to calculate their tax correctly.

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.

The process of checking contributions was done manually on a case-by-case basis until last June when a new computerised system was introduced, which HMRC says should help reduce mistakes in the future. It aims to reconcile information held on different systems within HM Revenue and Customs.