PAYE tolerance level to revert to £50

THE TAXMAN will decrease the £300 “tolerance” level to £50 for taxpayers who have underpaid due to PAYE errors, it has confirmed.

The introduction of the National Insurance & PAYE System (NPS) last year led to large scale errors for 2008-09 and 2009-10, affecting an estimated 15 million people. Because of this, HM Revenue & Customs agreed to write off the debts of people who owed less than £300. Now, it has announced that this will be reduced to £50 for the estimated 1.2 million people who underpaid tax in 2010-11.

A HMRC spokesman said: “We’ve used a tolerance since PAYE was introduced to achieve a balance between the costs of sending out tax calculations for relatively small amounts of tax with the cost of that work to the taxpayer.

“The six-fold increase to £300 was always intended as a temporary measure while we reconciled two years at one time. That work is now complete so it’s only right that we return the threshold to its normal level.”

Robin Williamson, technical director of the Low Incomes Tax Reform Group, said that HMRC should reconsider this decision for vulnerable groups: “Going back to the £50 level is perfectly legitimate for the majority of people involved. But there are some – particularly pensioners on low incomes, who may have had their payments written off in the previous two years and will find they will have to pay the accrued limit.

“This might cause them particular hardship. It might be good for HMRC’s public image to give them the £300 tolerance on that exceptional basis.”

The head of tax at ACCA, Chas Roy-Chowdhury, said the £50 limit was fair. But the implementation of real-time reporting, due in October 2013, would hopefully prevent coding errors from taking so long to rectify.

Roy-Chowdhury said that HM Revenue & Customs should prioritise rectifying underpayments because much of the tax would have to be paid off in the run-up to Christmas. “HMRC would have been better off getting the underpayments out of the way now. They are doing the number crunching for the overpayments in July and underpayments after. This is probably the wrong way around.”

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