2m have income tax debts cancelled
Nearly two million people who have underpaid income tax are having the amount they owe written off, it has emerged.
HM Revenue & Customs is cancelling tax debts for 1.9 million people who paid the wrong amount of tax during 2006/07 because of issues with the Pay As You Earn (PAYE) system, according to the Sun newspaper.
In theory the total amount of income tax being written off could be as high as £500 million, although a Treasury spokesman said in reality it was likely to be much lower than this, partly because anyone owing less than £50 automatically has their debt cancelled.
He added that HMRC had estimated that if they did pursue the outstanding sums they would only recoup around £30 million.
Part of the problem is that the Government has only four years in which to reclaim tax that has been underpaid, unless criminal activity is suspected.
As a result, it will run out of time to collect the money owed for the 2006/2007 tax year in April next year.
A Treasury spokesman said: "The 1.9 million figure refers to tax underpayments within the open cases for the financial year 2006/07.
"Legislation means that tax underpayments cannot be pursued more than four years after the relevant tax year, except where they involve illegal activity.
"It is therefore right that HMRC should focus its attention on reconciling the tax affairs of individuals for later years, where there is full information and the time to work on each case."
The 1.9 million people who have underpaid tax are part of 17.8 million unreconciled cases from between 2004 and 2008 that HMRC is gradually working its way through.