Rebates spark taxation change calls

Calls for a simpler tax system were made today after it emerged that six million people are due a rebate of around £300.

HM Revenue and Customs (HMRC) is preparing to send out tax rebates totalling £2.5 billion between now and the end of next year, as it clears its backlog of pay as you earn (PAYE) open cases for the tax years 2003 to 2008.

Meanwhile, one million people will receive letters in the next few months notifying them that they have paid too little tax for the year 2010/11, with the average amount owed expected to be between £500 and £600.

Matthew Elliott, chief executive of pressure group the TaxPayers' Alliance, which campaigns for lower taxes, said: "Clearly the tax system is too taxing, even for the taxman.

"A simpler, fairer system could decrease mistakes like these and encourage economic growth.

"Until simplification happens, overly-complicated taxes will continue to be an administrative nightmare for HMRC and a confusing and overwhelming beast for taxpayers."

HMRC has carried out an annual check to make sure that the amount of tax and National Insurance deducted by employers matches its records.

A new IT system was brought in last year which made it easier to spot discrepancies and therefore more cases where people have over or underpaid came to light.

HMRC said there would always be under and overpayments in tax at the end of the year which are "part the PAYE system".

It said people may have changed their circumstances, and added: "This is not a 'blunder' and HMRC's IT systems are working as they should."

An HMRC spokesman said: "Money that is owed going back many years is now going to be automatically paid back as we get the tax system up to scratch.

"We are getting cases that were left unreconciled up to date as quickly as possible. Anyone owed money will be paid back with interest without the need to contact us.

"The fact is there will always be some cases at the end of every tax year that require an under or overpayment to balance but these cases will reduce as the new system beds in."

The revenue's routine "reconciliation" sparked outrage last year when nearly six million people paid the wrong amount of income tax.

In March this year, the head of HMRC admitted the department needed to improve its customer service but said it was unlikely to be in a "good place" before 2013.

Mike Clasper, chairman of HMRC, told the Treasury sub-committee the two main areas which needed improving were customer service and staff engagement.

Mr Clasper told the committee the problems consumers have had in contacting HMRC stemmed from the fact that it was having to handle eight tax years in one year, rather than the usual three tax years in one year, following the introduction of the new IT system.

Chris Lee, a partner and business tax expert at James Cowper, said: "HMRC is working with a new IT system and it now appears a fact of life that the PAYE system will result in huge numbers of people paying the wrong amount of tax ...

"Companies who submit incorrect data, such as the wrong name, may cause real problems for their employees."

John Whiting, of the Chartered Institute of Taxation (CIOT), told the BBC such incidents were becoming a regular feature of the tax system.

"These are reconciliations, checks and cross-checks to make sure you have paid the right amount of tax," he said.

PA