The taxman has decided to write off some tax bills for almost two million people. Mike Kielty reveals how these changes will affect you.
It emerged last week that HM Revenue & Customs (HMRC), the body that organises tax in the UK, has decided to write off some of the tax bills for 1.9million people from the tax year 2006/7.
Some newspapers have estimated that the written off tax bills could total £500million, but the true figure is likely to be much lower at £30million, as bills of less than £50 will have been automatically written off.
This all comes on top of a flurry of bad publicity for HMRC over the last year. HMRC completed a review earlier in the year that found that 1.45 million people would have to pay back an average of £1,380 to the taxman. Check out Stop the huge tax blunder hurting you for more details.
The Daily Telegraph reported that the chairman of the parliamentary taxation group, Ian Liddell-Granger, described HMRC as “a 19th century organisation in a 21st century environment”.
So, why have some people’s bills now been written off, and how will you know if it’s going to affect you?
The causes
These written off tax bills relate only to the 2006/2007 tax year and come from the Pay-as-you-earn (PAYE) tax system, where income tax and National Insurance contributions are automatically deducted from your wages.
The 1.9 million people involved here were in what’s known as “open cases”, where HMRC has not yet checked the particular details in the case.
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HMRC says that the tax system always requires a process of “reconciliation” at the end of the year, where the taxman reviews the tax arrangements for individuals and makes adjustments depending on how their situation has changed.
The taxman can only go back and collect past debts if they happened four years ago or sooner. Anytime before then, and the debt must be written off. This limit is fast approaching with respect to the 2006/20077 tax year.
With regard to the problematic tax bills from 2006/2007, HMRC argues that given the four year limit, it is more worth its while “reconciling” the tax arrangements for people in later years, where it has more up-to-date information, particularly the current address of the employee, and more time to work on each case.
How will this affect me?
If you are part of this group of 1.9million, then you are unlikely to know much about it, and HMRC will not be sending any formal communication to you to let you know that your bills are being written off.
This is on the basis that few people are going to get upset with their tax bills being written off, so there isn’t a particularly pressing need for HMRC to send letters out to people.
It’s an understandable decision, although given how opaque the tax system seems for many people, it might be better for HMRC to take a more pro-active stance in getting its message across in the future.
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If you are worried about whether this affects you, then the best idea is to check your P60 form from 2006/2007. You should get a P60 from your employer at the end of every tax year, and it will show your tax code, as well as provide a summary of your wages and the tax that’s been deducted from them.
That way, you can check if any mistake was made, for example if you were assigned the wrong code.
If you want to check if you are due any refund, you can also check the HMRC’s Student tax checker at .
This tax checker service works for other people aside from students, although there are a good few restrictions on it. This checker won’t work for you if any of the following issues apply to you: you receive Married Person’s Allowance; you are aged 65 or over; you earn over £100,000 per year; you have other kinds of taxable income, like dividend; you receive state benefits; you’re self-employed.
What can I do to avoid mistakes like this in the future?
It’s certainly worth checking whether your tax code is correct. If it’s wrong, you might end up having to pay back more in the future.
If you’re in employment or moving between jobs, then you will find your tax code on your P45 form. It’s also on your PAYE Coding notice, which is sent to you by your tax office at the start of each financial year.
Failing this, you can get in touch with your local tax office to find out your code. You can find your local tax office's details by putting in your own information on this page on the HMRC's website.
Tell us about your experiences with the taxman’s blunders
Do you think that it’s fair that you are being asked to pay this back, or is it only right that the taxman is going after the tax that we rightfully owe?
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