Over 5m people had the wrong tax code in the last year!

Over 5m people had the wrong tax code in the last year!

Reports suggest that HMRC overcharged employees £3.5bn in income tax last year, with 5.6m people paying too much due to mistakes on tax codes in the PAYE system.

The massive £3.5bn tax overcharge was disclosed in a freedom of information request.

While taxpayers are responsible for identifying a mistake on their PAYE tax code, the problem with codes usually happens when a taxpayers’ circumstances change.

If HMRC does not have the most up-to-date information, it will continue to deduct tax based on its own estimate of income without checking the figure with the taxpayer. A partner at one accountancy firm stressed: ‘Individuals must check their tax codes and year-end PAYE summaries for mistakes, particularly those with any form of non-PAYE income or company benefits. Even when overpayments are identified, reclaiming the money can be slow and frustrating. Many taxpayers face long waits, with written requests often ignored and phone calls going unanswered at HMRC.’

The scale of the issue is surprising, with 5.6m taxpayers a year being given the wrong tax code meaning that literally Millions of people are paying the wrong amount of tax simply because HMRC is almost ‘guessing’ what they earn. For too many people, this will go completely unnoticed.

HMRC often issues the wrong tax code for various reasons, often related to benefits in kind issues, which employees really must check. These include:

• company benefits in kind, i.e. company cars, healthcare and gym memberships, even though they no longer receive the benefit.
• additional income, such as rent, dividends, or freelance work they no longer do.
• multiple jobs; and
• out of date or late employer payroll information.

It seems that HMRC’s coding assumptions often go unchecked because paper tax code notices are no longer routinely issued, meaning millions of employees may be unaware that their tax code is wrong and that they are being overcharged.

Taxpayers should check that they are not overpaying through the PAYE system as HMRC is under no obligation to check and tell them if they have overpaid, they also warned that HMRC now conducts fewer internal assessments to find errors and overpayments.

A HMRC spokesperson advised: ‘Everyone is responsible for ensuring their own tax code is correct, and they can manage and update their details quickly and easily via the HMRC app or their online tax account. Customers should also discuss any tax code issues with their employer first.’