If a finance company were to suddenly contact its customers and announce that they had underpaid on an agreement, there would be an outcry, but it would appear that the HMRC can do just that.

A finance company has to guard its reputation and image with its customers, but the HMRC will anger millions by claiming that they have underpaid tax by roughly £1,500 each.

Some lucky tax payers will get a rebate of £400.

Those effected will likely pay their tax through the Pay As You Earn system and this development does not affect Self-Assessment tax payers.

It’s reckoned that over six million people will be affected and of those, nearly 1.5 million owe an average of £1,500 apiece. The irony is that around 4.5 million have overpaid and will receive a rebate.

Figures suggest that £2 billion has been underpaid and £1.8 billion overpaid, so the Treasury is down by some 200 million. And if the Treasury is down, then action has been taken.

Many observers wonder if retrieving 200 million is worth the negative PR at a time when the austerity measures are about to cut deep. But Treasury Minister David Gauke was unrepentant, saying that it was not the place of the Government to “…just wave goodbye…” to the money that was owed by so many.

He went on to say that:
“At the moment we have said that those who owe more than £2,000 – those who are obviously in the most difficult position – we’re reviewing exactly how we’re going to do that. For those who owe less than that we will be seeking to recover that over the course of the 2011/2012 tax year through tax codes.”

As to where the HMRC appears to have got the sums wrong, it comes down to a new computer system which was introduced in 2009. It has picked up a number of discrepancies and is more accurate in its calculations. This new computer system has come at a time when there has been such a change with working practices and patterns.

Pay As You Earn was first introduced in 1940 when work was a simple affair, with most keeping one job and experiencing little change in their salaries on a yearly basis. Now with many people holding down two jobs, and commission based earnings becoming more prevalent, the Pay As You Earn system is struggling to cope.

Millions of letters are about to be posted informing tax payers of their liability, or windfall.

Some experts reckon that some individual tax payers will get a refund, as a well as a new charge, effectively cancelling out each payment.

The problems occur when the new computer system spots that contributions made via tax and national insurance using the Pay As You Earn system, do not match those on record at the HMRC.

The tax office was at pains to point out that everyone affected has a right to appeal, especially if they can demonstrate that they have provided all the necessary information in good faith.

A HMRC spokesman told the BBC that:
“The overwhelming majority of PAYE cases – over 40 million – are right, so most people have paid the right amount of tax. But for a variety of reasons in some cases there will be a discrepancy. The government accepts that the way we go about deducting tax at source needs to be much more accurate and the introduction of the NPS [computer system] paves the way for a real time system which in turn boosts accuracy.”

It can only be hoped that HMRC will come under the same scrutiny as a finance company which had come to the same conclusion about its customers’ contributions.

Guest Article by Neil Camp