PAYE coding 'fiasco' - what happened next...

A written statement has been made to the House of Commons by David Gauke MP, the Exchequer Secretary at HM Treasury and the minister responsible for HM Revenue & Customs;

I am now able to give the House a report on HMRC’s progress in resolving the issues on which I made a statement on 8 September 2010. Lesley Strathie, chief executive of HMRC, will be writing to the Public Accounts Committee and Treasury Select Committee separately today.

HMRC have been working hard to clear the long-standing backlogs of unreconciled tax cases.

Since September they have made rapid progress on working through the nearly 6 million adjustments needed to ensure that the correct amount of tax is collected for the tax years 2008-09 and 2009-10. By the end of last year in 90 per cent of cases where HMRC had received all relevant information, customers had received a refund notice or a calculation of overpayment in respect of these years.

In cases where an underpayment was due HMRC have sought to take a flexible and sympathetic approach to collecting the tax that is due. In the minority of cases where the unexpected bill has been caused by HMRC’s failure to act promptly on the information received, HMRC have considered claims to be written off under an existing concession (ESC 19).

In addition:

HMRC estimate that there are about 250,000 cases in respect of 2008-09 and 2009-10 where a taxable state pension has been paid by DWP and the tax due on this pension should have been collected through a tax code adjustment. These pensioners have not yet been issued with a notice of underpayment but would have a strong case for their underpayment to be written off in line with the concession. HMRC will not require these pensioners to claim the concession individually, but will instead write off all the relevant underpayments.

HMRC are working to clear the backlog of cases from earlier years. They will work all cases where a taxpayer is due a repayment for earlier years.

Further underpayment notices will not be issued for years earlier than 2007-08. For 2007-08, where possible, any amounts due will be included in the tax code for 2011-12 so that the money is collected over the course of the year through PAYE. HMRC will apply the same treatment to these cases as to those for 2008-09 and 2009-10. HMRC will not be collecting sums for less than £300 for that year and will allow people to spread payments in cases of hardship. Taking these concessions into account, HMRC expect to be in touch with around 450,000 people before the end of March to collect underpayments to the value of some £180 million.

The annual exercise to set tax codes for the 2011-12 tax year is about to begin. HMRC have reviewed the experience of last year when transitional issues with the new system led to some taxpayers receiving incorrect tax code notifications, and have conducted extensive additional testing designed to prevent a recurrence of these issues this year.

HMRC are continuing the process of modernising PAYE for the 21st century through the introduction of Real Time Information (RTI). This will help reduce the need for reconciliations in the future.