Pay alert as 'huge numbers sent wrong tax code'

The Chartered Institute of Taxation (CIT) believes wrong information has been sent out to "huge numbers of people" and has warned that, unless it is corrected, it could cost them hundreds of pounds.

The news follows yesterday's revelation by the Yorkshire Post that hundreds of thousands of injured war veterans have been sent erroneous letters stating they will now be taxed on their war pensions, with HMRC saying it will be the responsibility of the individual to correct its mistake.

CIT said many people with only one job were being sent two or more notices with different tax codes. It said that if the error was not corrected by the time the new codes come into force in April wrong information could be sent to employers and pension companies, leading to them deducting too much tax through the Pay As You Earn (PAYE) scheme.

In the worst case, the group said people could pay 108 a month, or 1,295 a year, too much.

It is calling on HMRC to run a publicity campaign alerting people to the potential problem.

CIT president Andrew Hubbard said: "Most people on PAYE are used to assuming that what the taxman sends them is correct.

"But this year, many of them are being given wrong information and unless they spot it and tell HMRC, their employer will receive the wrong information too and they could get a nasty shock when they open their April pay packet and see it is as much as a hundred pounds lighter than they are expecting."

The problem has arisen as the result of a new system, which combines information on National Insurance contributions and PAYE for the first time.

In some cases, the system does not have information on people leaving jobs, meaning those who have switched work during the past few years are often being treated as if they have two jobs – and much higher earnings.

As a result, they may wrongly have their personal allowance split between two jobs or allocated to a job they no longer have, meaning their current employer will be told to deduct too much income tax from their pay.

An HMRC spokesman said: "There will be cases when some people receive an incorrect coding notice or more than one coding notice for the same employment in a short time, because there is a discrepancy with what we hold on our records.

"Anyone in this position should check their code using the guidance included with the code and on our website, www.hmrc.gov.uk/incometax. If they cannot resolve their query they should call HMRC."