Six million facing tax bill shock
HM Revenue & Customs (HMRC) admitted that it has to "improve accuracy" after it emerged that nearly six million people paid the wrong amount of tax, with about 1.4 million facing demands for more payments.
A total of £2 billion has been underpaid through the Pay as You Earn (PAYE) system over the past two years. It means that the 1.4 million taxpayers concerned will be required to shell out an average of almost £1,500 each to make up the shortfall.
HMRC head of national news Paul Franklin told BBC Radio 4's Money Box programme: "We have to improve accuracy, there's no argument about that.
"What this approach is about is improving accuracy, making sure the tax that is taken from people's salaries and pensions during the year is spot on, not a little bit over or a little bit under. We're not happy with how PAYE has functioned, we're happy with the fact it taxes most people correctly, we're not happy with the fact that some people are wrongly taxed.
"The roots of this are in the fact that PAYE came in in 1944 during the Second World War, at a time when many people stayed with the same employer during the whole of their working lives. It's not like that any more. We have to reflect that and have new systems."
Meanwhile, 4.3 million people will have better news, with the taxman informing them they have paid too much tax. With a total overpayment of £1.8 billion, each could receive an average rebate of £418.
The first 45,000 letters from HMRC are expected to arrive on doormats on Tuesday.
Some 30,000 will alert taxpayers that they are due a rebate and 15,000 will break the news that they have underpaid and will have their tax code altered next year to claw back the money. Millions more letters will go out by Christmas to the rest of those caught up in the blunders.
With an average additional payment of £1,428 being demanded, those affected by underpayments could be more than £100 a month worse off next year while the money is recouped.
The TaxPayers' Alliance said the news would be a "real concern" for low income families. Campaign manager Emma Boon said: "It could take months for HM Revenue & Customs to sort out this mess. It's a real concern for low income families who face a nervous wait to see if they are affected and if they face paying back large sums of money. Taxpayers must ensure that they don't get bullied into paying back more than they can afford in instalments and it would be unfair if low income families are asked to repay a lump sum for someone else's mistake."