CIOT: 5.1 million tax reconciliations – not errors

Attacks on HMRC for making 5.1 million ‘errors’ in people’s tax for the year 2011-12 are unfounded and derive from a misunderstanding of what the PAYE system is currently capable of achieving, says the Low Incomes Tax Reform Group (LITR).

HMRC are this week starting to send out notifications of up to 3.5 million refunds averaging £379 and 1.6 million underpayments averaging £537.

LITRG Chairman John Andrews said:

“PAYE is a three-sided operation, involving the taxpayer, the employer or pension-payer and HMRC. It is an increasingly computerised system which has few flaws in the programming itself. It does not, and was never intended to, collect the right tax in all cases during the year, although in practice it does do that for many people, especially those with a single, simple source of employment or pension income. But there is always the need for HMRC to check at the year end – known as ‘annual reconciliation’.

“The biggest difficulty for the PAYE system is the millions of changes that happen during any year which have to be captured and reflected in the PAYE codes. How close the system gets to collecting the right tax depends very much on the quality of data it receives. Error or delay on the part of the employer, pension provider, taxpayer, the DWP or HMRC all compromise accuracy. And sometimes the system cannot process changes until some time after they have happened.

“HMRC is in the midst of bringing about significant changes to the PAYE system over the next two years. The Real Time Information (RTI) project will require employers and pension-payers to be more accurate in the information provided to HMRC. RTI will be fully in place by April 2014. Another development will allow some taxpayers to change their own details online which will capture change quicker than current methods.”

What LITRG would like to see

There is a range of actions that HMRC could take to improve the situation still further:

Increase the numbers of well-trained staff within HMRC capable of dealing with helplines and post. We appreciate that this is difficult to do when HMRC is under pressure to reduce staff numbers, so the focus needs to be on improving the skills of existing staff.
Revamp a range of forms/letters/leaflets/processes, making them understandable to the average taxpayer and accessible to all – including, for example, people with disabilities and those who are ‘digitally excluded’.
Design processes to suit the taxpayer.
Ensure there are channels of support for those who need extra help, including continuing to work closely with the voluntary sector.

Provided HMRC capitalises on the earlier receipt of data under RTI by processing information in real time, it will eliminate the in-built PAYE coding delays which give rise to some overpayments or underpayments of tax. The right level of investment in IT capability, staff and customer support is essential to realise this potential fully.

In the meantime, the clear message for taxpayers is to check how they are being taxed. Don’t get caught out for 2012/13 – check your PAYE codes now!

Notes to editors
1. LITRG’s guide to checking your tax code is available at:

2. Some of the reasons why the tax collected may be incorrect at the end of the year include:

· An employer or pension-payer has not operated the code sent to them by HMRC (and changes in circumstances towards the end of a tax year are hard to capture).
· An employer or pension-payer has made a human error in operating the payroll.
· The taxpayer has started to receive or has stopped receiving a benefit in kind during the tax year and the notification happens after the end of the tax year.
· The taxpayer has failed to notify HMRC of some change in their circumstances which affects their overall liability.
· A change in circumstances happened too near the end of the tax year to be adjusted in time – for example, receipt of an additional pension.
· A taxpayer gave incorrect information to HMRC.
· A situation where the complexity of the law makes it difficult to code accurately.
· A taxpayer has arrived in the country part way during a tax year or has left the country.
· A taxpayer has multiple income sources where the total income is not certain at the commencement of the tax year.
· A breakdown in communications or processes between the taxpayer, DWP and HMRC which means that a taxable state benefit is not taxed at all, or in full, during the year.
· HMRC inputting or processing error, or delay.

3. The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

4. The CIOT is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities. The CIOT’s 15,800 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’.

George Crozier
External Relations Manager

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The Chartered Institute of Taxation
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Low Incomes Tax Reform Group – an initiative of the Chartered Institute of Taxation

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