Should you pay for the taxman’s mistake?

September 07, 2010 2:27 PM

Tens of thousands of taxpayers are today starting to find
out if they have been affected by a catastrophic blunder at HMRC. Around 6
million people have either paid too much or too little income tax and letters
will be going out to those concerned from now up until Christmas.  Around
4.3 million of these have overpaid and are due a refund, but 1.4 million have
underpaid and will have to hand over an average of £1,428 each.
Although more people have overpaid, the total amount to be refunded to
taxpayers is £1.8 billion, compared to the £2 billion that is owed due to
underpayments.


What is especially galling about this latest HMRC howler is
not just the staggering scale of it but the serious consequences it will have
on hard-pressed families in the coming months.  Many will be simply unable
to afford to pay back up to £2,000 in the next tax year; it’s a unexpected cost
that they won’t have budgeted for. Some won’t find out until they’ve done
the Christmas shopping, when the average families’ finances are already
squeezed.  So on top of a potentially huge outlay, there’s the nervous
wait to see if a letter drops on their doormat between now and Christmas.


The clean-up operation for this latest HMRC disaster is
likely to take months. If they were incompetent enough to make the mistake in
the first place then it seems unlikely they will be  sufficiently
organised to fix it quickly and effectively.  Of course, this is not the
first time we’ve seen serious mistakes at HMRC.  Who could forget the time
they ‘lost’ 25 million people’s details after they were copied onto discs?
HMRC now has to deal with tax credits and benefits, as well as a labyrinthine
tax system.  The reason that errors like this happen, and are likely to
keep happening is because the system is complicated and expensive to
administer.  Drastically simplifying tax and welfare will help people to
understand what they are entitled to and what they should be paying in tax.
Overhauling the IT system is not enough – the mistakes have occurred on a new
£390 million computer system so throwing yet more money at hugely expensive IT
failures won’t help.


There is a silver lining in this cloud though, not just for
those who have overpaid taxes and are due a refund.  A concession may
apply to some taxpayers, meaning that they won’t have to pay the money back.
Under tax rules if people provided HMRC with all the information they needed to
get their tax code right, it should have used this information within 12 months
of the end of the tax year in which it was received to claw back the extra
money.  Those who alerted HMRC to changes in their circumstances that
affected their tax code before the start of the new tax year in April 2009
should ask for an Extra Statutory Concession (ESC A19).  Sadly though, the
people to whom this applies are likely to be in the minority and it means more
bureaucracy and filling in forms. As today’s Express points
out, HMRC should remember that it is the servant of the people, not their
master.

Tens of thousands of taxpayers are today starting to find
out if they have been affected by a catastrophic blunder at HMRC. Around 6
million people have either paid too much or too little income tax and letters
will be going out to those concerned from now up until Christmas.  Around
4.3 million of these have overpaid and are due a refund, but 1.4 million have
underpaid and will have to hand over an average of £1,428 each.
Although more people have overpaid, the total amount to be refunded to
taxpayers is £1.8 billion, compared to the £2 billion that is owed due to
underpayments.


What is especially galling about this latest HMRC howler is
not just the staggering scale of it but the serious consequences it will have
on hard-pressed families in the coming months.  Many will be simply unable
to afford to pay back up to £2,000 in the next tax year; it’s a unexpected cost
that they won’t have budgeted for. Some won’t find out until they’ve done
the Christmas shopping, when the average families’ finances are already
squeezed.  So on top of a potentially huge outlay, there’s the nervous
wait to see if a letter drops on their doormat between now and Christmas.


The clean-up operation for this latest HMRC disaster is
likely to take months. If they were incompetent enough to make the mistake in
the first place then it seems unlikely they will be  sufficiently
organised to fix it quickly and effectively.  Of course, this is not the
first time we’ve seen serious mistakes at HMRC.  Who could forget the time
they ‘lost’ 25 million people’s details after they were copied onto discs?
HMRC now has to deal with tax credits and benefits, as well as a labyrinthine
tax system.  The reason that errors like this happen, and are likely to
keep happening is because the system is complicated and expensive to
administer.  Drastically simplifying tax and welfare will help people to
understand what they are entitled to and what they should be paying in tax.
Overhauling the IT system is not enough – the mistakes have occurred on a new
£390 million computer system so throwing yet more money at hugely expensive IT
failures won’t help.


There is a silver lining in this cloud though, not just for
those who have overpaid taxes and are due a refund.  A concession may
apply to some taxpayers, meaning that they won’t have to pay the money back.
Under tax rules if people provided HMRC with all the information they needed to
get their tax code right, it should have used this information within 12 months
of the end of the tax year in which it was received to claw back the extra
money.  Those who alerted HMRC to changes in their circumstances that
affected their tax code before the start of the new tax year in April 2009
should ask for an Extra Statutory Concession (ESC A19).  Sadly though, the
people to whom this applies are likely to be in the minority and it means more
bureaucracy and filling in forms. As today’s Express points
out, HMRC should remember that it is the servant of the people, not their
master.

Latest Blogs:

TaxPayers' Alliance Icon

The sugar tax and the public finances

6:00 AM 05, Dec 2016 Harry Fairhead

TaxPayers' Alliance Icon

Working for the taxman

6:00 AM 26, Nov 2016 Harry Fairhead

TaxPayers' Alliance Icon

Further thoughts on the Autumn Statement

4:56 PM 24, Nov 2016 James Price

TaxPayers' Alliance Icon

Have we had too much austerity?

10:57 AM 23, Nov 2016 Alex Wild