Millions of taxpayers in line for early tax refund
HMRC has confirmed that more than three million tax refunds are to be sent out as of next week - two months earlier than previous years - due to an earlier review of the amount of tax paid for 2011/12 via the Pay As You Earn (PAYE) system.
It estimates that up to 3.5 million taxpayers may have over-paid tax and will receive an average repayment of £379, while up to 1.6 million may have to pay an average of £537 to the tax man due to the underpayment of tax.
PAYE allocates individual tax codes to each taxpayer in the UK to reflect personal circumstances, with the aim of deducting the right amount of tax at source. However, while HMRC believes the majority (85 per cent) of individuals will pay the correct amount of tax, around 15 per cent will require end-of-year adjustments to take into account a change of circumstances, including:
- If the individual moved jobs frequently and had gaps between periods of work,
- If the individual had multiple jobs or pensions, affecting the tax free allowance spread between them, or
- If benefits in kind were provided by the employer and if they may have changed during the year.
Stephen Banyard, acting director general for personal tax at HMRC, said it was 'pleased' to start the process more quickly, saying it would 'give money back to those we owe and deliver certainty to those with something to pay.'
PAYE has an automatic review or 'reconciliation process' at the end of each tax year to establish whether taxpayers have paid the correct amount of tax.
Those who have paid too much tax will receive an automatic repayment without the need to make a claim, while HMRC will usually automatically recover any underpayment from those who have paid too little tax via the PAYE system in instalments over the coming year.
Those who have paid too much or too little tax will be informed by HMRC via post (form P800) starting from 17 May 2012 and over the next couple of months. It is hoped that the automated process will be completed by October 2012.