2nd huge UK tax bill blunder this year leaves millions in limbo

2nd huge UK tax bill blunder this year leaves millions in limbo
Hundreds of thousands of UK citizens’ tax bills may have been substantially miscalculated on two consecutive occasions, HM Revenue and Customs whistleblowers have revealed.

HM Revenue and Customs (HMRC) has privately acknowledged that tens of thousands of Britons who overpaid or underpaid their income tax bills last year may still not have paid the correct amount. The government body is reportedly uncertain of the true scale of the debacle.

In June, HRMC said it collected an incorrect amount of tax from over 5 million UK workers for the year leading up to April 2014. The individuals concerned subsequently received official letters detailing how the HRMC planned to take back or reissue funds, which averaged at £300 per person.

While most of the individuals concerned have been issued revised tax demands or been paid compensation, they now face the possibility of having their tax bills assessed and recalculated again. HMRC have reportedly ceased issuing repayments until the issue is resolved.

An email, initially disclosed to The Telegraph, revealed the scale of HRMC’s latest blunder. The leaked email had originally been sent to a group of top-level HRMC officials and accountants. The HRMC staff copied into the message were issued guidance to inform taxpayers who had questions about their bills “not to repay any underpayment” of tax.

The email also reportedly said taxpayers who had paid too much tax should keep any cheques they had been issued, and refrain from cashing them. Anyone who had cashed a check would potentially have to hand the money back to the HRMC if a mistake had occurred, the email said.

In the leaked message, HRMC said its most recent errors largely stemmed from accidental duplicate entries for taxpayers. The body also claimed a degree of blame rested with taxpayers who had reportedly failed to supply accurate information relating to their salaries.

“We are urgently investigating these cases and will look to resolve the matter in the next six to eight weeks. We currently do not know the scale of the issue but some large employers are involved, so several thousands of employees may be affected,” the email warned HRMC staff.

Whistleblowers, who leaked the message to The Telegraph, warned that the number of Britons affected by the Revenue’s most recent blunder could “easily run into the hundreds of thousands”.

HM Revenue & Customs building in Whitehall, central London. (Reuters / Suzanne Plunkett)

One particular whistleblower, concerned about HRMC’s miscalculations, argued the errors had likely stemmed from a £270 million Real Time Information (RTI) system, under which UK employers report cash paid to their staff on a monthly or weekly basis.

While the system was designed to reduce errors, the whistleblower told The Telegraph that a vast increase in the quantity of information being processed could have been a serious contributing factor to HRMC’s mistakes.

“HMRC refuses to admit the system doesn't work, and it's scandalous that there is no politician holding them to account as the whole program of welfare reform could be put at risk because of this,” a HRMC whistleblower said.

“The system is not fit for purpose, it's inherently flawed and routinely produces errors that cause a huge mess for families and employers,” he added.

At the close of each tax year in April, HMRC calculates whether Britons party to the state’s Pay As You Earn (PAYE) system have paid an adequate sum of tax. A change in personal circumstances, such as a new job or a bump in salary, often means millions of people end up assessed under the wrong tax code.

Additionally, official state or personal pension payments may be problematic if the HMRC are unaware of a secondary source of income.

In such cases, HMRC collects any outstanding debts from UK citizens by adjusting workers’ tax codes for the year that follows. And in cases where it owes a taxpayer money, it generally issues a cheque to such individuals.

These recent errors are the latest in series of public embarrassments for the HM Revenue & Customs, which has been party to intense criticism for its heavy handed treatment of taxpayers later revealed to be victims of the tax body’s own miscalculations.

Chartered accountant Elaine Clark, who runs the CheapAccounting tax firm, expressed outrage and bewilderment at the news of HRMC’s most recent miscalculations.

“This is extraordinary, a disaster, and heads need to roll at HMRC,” she said.

“The pressure put on individuals who face demands for tax is enormous, so it's extraordinary that HMRC should again have made such basic errors,” she added.

Stuart Phillips, director of tax and financial advice firm The Private Office, said HRMC’s blunders are undermining public confidence in Britain’s tax system. He also warned the Revenue’s particularly “aggressive” efforts to step up their tax collection such as “lifting money directly from people’s bank accounts” was unacceptable.