Employers may be deducting too much

MANY employers may have been short-changing their employees by taking too much tax out of their salaries, according to the Inland Revenue, writes Maria Scott.

The problem has come to light after tax inspectors in the Bournemouth area noticed, from inspecting P45 certificates, that some individuals' tax bills were wrong. In this year's Budget the Chancellor introduced a new tax rate of 20 per cent, payable on the first pounds 2,000 of taxable income. This is 5p less than the basic rate of tax that applies on the bulk of an employee's earnings.

But some employers have deducted tax at 25 per cent on the pounds 2,000 band.

The mistake costs pounds 1.92 a week, or pounds 100 over a year. In the current tax year 34 weeks have passed, so employees may be entitled to refunds of pounds 65.

After spotting a number of errors, tax inspectors in Bournemouth took a sample of 100 employees and concluded that as many as 10,000 local employees may have paid too much tax.

The mistake may have been repeated by employers throughout the country, although Touche Ross, the accountancy firm, believes smaller employers are most likely to have made the error.

Employers have tax tables to help them work out how much tax to deduct. New ones were sent out his year taking the 20 per cent rate into account.

Maurice Parry-Wingfield, technical tax partner at Touche Ross, said: 'The leaflet and instructions are straightforward. But last year there were two stages to computing the tax liability. This year there are three. Probably some clerks have overlooked this third stage and perhaps some computer programs have not been changed to include it.'

Some smaller companies only employed part-time people to organise their payrolls and they may not be as aware as they should be of the new system.

Touche Ross calculates that single people earning pounds 15,000 a year, entitled to the single person's allowance of pounds 3,445 (tax code 344L), should have paid pounds 1,822.61 up to week 34 of the tax year, if their liability had been calculated properly. If it had been calculated at 25 per cent on the first pounds 2,000 of income, the bill actually paid would have been pounds 1,888.

An Inland Revenue spokesman said that people could approach a local tax inquiry centre for help.

Even if the mistake is not discovered immediately, it should be picked up eventually by the Revenue's regular audit procedures. Employers can arrange to pay refunds through salary cheques.