HMRC: tax might be more taxing than you thought, Libby...

This week's disclosure that errors have been found in the PAYE records of up to six million taxpayers comes as no surprise to those of us with experience of the system. In my case, I was, many years ago, a PAYE group leader in a smallish North London office (Hendon, to be precise, covering Golders Green, Hendon and the surrounding areas).

PAYE is a rather clever system. HMRC gathers information from you and your employer, works out what your allowances are, deducts benefits-in-kind and income from other sources as appropriate, and issues a tax code to you and your employer (simple rule of thumb: take net allowances, remove the last digit, add the correct letter, and hey presto, there's your tax code*).

For most people, this is simple. If you're single, working for only one employer, and not in receipt of benefits-in-kind or making payments that attract tax relief, you code will be calculated thus;

personal allowance = £6,475

therefore tax code = 647L

Your employer takes that code and, using the tables provided, calculates what amount of income tax should be deducted. The tables are cumulative, so there's a different table for each week and each month. With computerisation, it's even easier, as there are plenty of companies willing to provide software that will do all of the calculations and prepare the end of year forms.

And this is where the pesky asterisk comes in. There are plenty of people out there whose affairs aren't as straightforward. The system was designed on the basis that people would stay in the same job for lengthy periods, and would hold down only one job. People who move from employment to self employment, or from employee to company director, complicate matters, as more information needs to be gathered, captured and reviewed. For a system that is only as reliable as the information fed into it, the greater the scope for error, misreporting or, to be blunt, non-reporting, the more errors there are likely to be.

There have been suggestions, from the likes of Libby Purves in today's Times, that the new computer system is to blame. She's right, but for all of the wrong reasons. Reconciling people’s tax after the end of the year, is a normal part of the PAYE process. But this is the first time HMRC has done it using the new NPS IT system and is doing two years at once as it was not done last year. As a result, more taxpayers are affected. The more efficient NPS automates the process – previously HMRC dealt with cases of over and under-payments one-by-one, clerically.

So, no drama, no crisis, merely the usual media failure to understand what really happens in a Government department. The great irony is that, until taxpayers contact HMRC to query the corrections, we won't know why they happened. But never let it be said that media experts are unwilling to admit to their mistakes...