HMRC has made errors on millions of tax bills despite a new system brought in to improve accuracy.
More than five million people paid the wrong amount of tax in 2013/14.
An estimated three and a half million paid too much tax and will be able to claim a refund from HMRC.
But two million inadvertently paid too little tax and now face claw backs averaging £300.
The number of errors in 2013/14 haven’t changed compared to the total number of errors in 2012/13, despite reforms costing £270 million to improve accuracy in the Pay-As-You-Earn system.
Is the new system failing?
Last year HMRC launched a new Real Time Information (RTI) tax system to reduce errors in its PAYE tax calculations.
It allows employers to update workers' tax records regularly on a weekly or monthly basis rather than waiting to report changes at the end of the financial tax year.
This was meant to help make tax payments more accurate, but the figures suggest it has had no impact at all.
However, HMRC says there will always be an end-of-year reconciliation because of how PAYE works.
A HMRC spokesman said: “Most people pay the right tax throughout the year, but there will always be a small percentage of the 41 million people in PAYE who have underpayments or overpayments at year end. This could be because they have moved jobs, received a number of different sources of income or received benefits-in-kind that were only reported at the end of the year. ’
But in regards to the RTI programme, HMRC said it was too soon to draw conclusions on its success.
[SPOTLIGHT]The spoksperson added: “We do not yet know what effect RTI will have had on reconciliations for 2013-14. As we adopted a staged process for employers using RTI, some will not have used RTI for the full tax year. We will not be able to measure any effect on reconciliations for 2013-14 until the end of this tax year 2014/15. That said, early indications show that processing is in line with our expectations.”
Compare current accounts with lovemoney.com
What happens if you've overpaid
If you've overpaid, you should be sent a cheque from HMRC in the post.
But you can make a claim now if you think you're owed money. Read How to get a tax refund for tips on how to do this.
And watch out for tax refund scams that may start to circulate off the back of this news. Read Watch out for these HMRC tax refund scams for tips on what to be aware of.
What happens if you’ve underpaid
If you’ve underpaid, you should be sent a letter from HMRC detailing how much you owe exactly.
If you’ve underpaid by less than £3,000, it will be collected in equal instalments over the course of the 2015/16 tax year, which begins next April, via your pay.
If you’ve underpaid by more than £3,000, you can pay some or all of the bill now. If you pay a part payment to bring the amount you owe down to less than £3,000, it can then be collected via your pay in 2015/16.
If you can’t afford to pay the sum you owe, you should contact HMRC to discuss spreading what you owe over a longer period.
Compare current accounts with lovemoney.com
Check your tax code!
You're tax code determines how much tax you pay, so you should make sure you are on the right one.
Have a read of: Tax codes: how to check you're on the right one.
Compare current accounts with lovemoney.com
More on tax:
How to cut your Inheritance Tax bill
Council Tax debt now biggest problem for households
HMRC letters to detail exactly how your tax money is spent
HMRC to raid 17,000 bank accounts a year to retrieve unpaid tax