HMRC was caught up in another weekend avalanche of bad publicity as a result of PAYE codes that negelected to include allowances for people who started to receive pension payments during the past year.
In what BBC Radio 4’s Moneybox described as HMRC’s “latest tax bungle”, the department failed to take account of the state pension when it sent out tax codes to people who first drew their pension this year. As a result, it will send demands for underpaid tax to nearly 150,000 pensioners.
The same mistake happened in the two previous tax years, but was only picked up as reconciliations were finally made within the new National insurance and PAYE Services (NPS) computer system. Many of those previously affected have had their underpayments waived as a result of extra statutory concessions, but because this mistake was discovered in-year, the department said it had no power to write the payments off.
Instead, affected taxpayers will be given three years in which to settle the outstanding sums.
CIOT tax policy director John Whiting told presenter Paul Lewis: “I think it’s the final knockings of the switch HMRC have done to their new computer system. And I say final. I hope it’s the final one.”
Whiting urged the department to offer the three-year payment option as a default and on Monday morning the deparment confirmed that this is the approach it would take.
A spokesman added: “We have included the state pension in the tax codes for 2011-12 which we issued recently. This means that they will be on the right footing for the future and paying the correct amount of tax from April 2011.”
Once all the end of year PAYE forms are received for 2010-11 (19 May), HMRC will then reconcile its records for the year and dispatch P800 tax calculations to pensioners who may have paid too much or too little tax during the year.