According to HM Revenue & Customs (HMRC) around 3.5 million people paid too little tax through the Pay As You Earn (PAYE) system in 2013-14, while as many as two million may have paid too much. The average incorrect amount is thought to be around £300.
These figures mean that a total of 5.5 million paid incorrect amounts of tax, an increase on last year’s 5.2 million, which was supposed to decrease after the introduction of the department’s real-time information (RTI) system for PAYE, which cost £270m to implement.
Critics are now calling the introduction of RTI into question, given that it was supposed to reduce the number of errors, not increase them, and are suggesting that “something in RTI is not working”.
The PAYE system checks tax paid against tax owed at the end of each year, meaning that under or overpayments can come about through changes in financial circumstances such as changing jobs or receiving benefits.
Under the system, employers must report wage changes and other payroll information on a weekly or monthly basis, theoretically making tax payments more accurate but there are even more errors this year, with RTI in full flow, than last year, when the scheme was only a pilot.
However, a spokesman for HMRC said that a staged roll-out of RTI meant that some employers had not used they system for the full tax year, but early indications suggested tax processing was “in line” with expectations.
He added that the effect of Real Time Information is not reflected yet, as it has not bedded in, and insisted that, over time, RTI will help to reduce the number of cases that have to be reconciled.
