LOCAL MP HIGHLIGHTS ‘PAYE’ BACK TIME UNFAIRNESS

Local MP Dr Eilidh Whiteford has questioned the Westminster Government’s commitment to ‘fairness’ after a Parliamentary Question from the SNP revealed that people receiving an unexpected bill from HM Revenue and Customs would be charged interest at 3%, while those owed money by the taxman would only be paid at a rate of 0.5%.

HM Revenue & Customs is in the process of sending letters to 1.4 million people who have underpaid tax and 4 million people who have overpaid following errors in the PAYE system.

Dr Whiteford, a Member of the Scottish Affairs Select Committee, said:

“The Tories and LibDems talk about fairness, but where is the fairness in charging six times as much in interest to those who, though no fault of their own, have found they have underpaid tax than will be paid by HMRC to those who have overpaid.

“More than a million taxpayers face the prospect of an unexpected tax bill because of errors made by HMRC, and in some cases these repayments will cause hardship for households.

“We still need to get the bottom of how and when this problem occurred. It is essential that taxpayers can have confidence in the PAYE system, and though this fiasco was Labour’s last data disaster, the current coalition Government must now get a grip.

“This whole debacle further underlines the need for Scotland to have control over taxation. From 10p tax to this, the UK Government lacks all credibility.”

The SNP’s Parliamentary Question is detailed below.

To ask the Chancellor of the Exchequer (1) what steps HM Revenue and Customs plans to take to assess hardship in cases where individuals cannot afford to make repayments of underpaid tax as a result of historical errors in the PAYE system; [15457]

(2) at what rate interest will be charged on underpaid tax owed by individuals as a result of recent miscalculations of tax liability made by HM Revenue and Customs in the PAYE system; [15461]

(3) at what rate interest will be paid on overpaid tax owed to individuals as a result of recent miscalculations of tax liability made by HM Revenue and Customs in the PAYE system. [15462]

David Gauke, Treasury Minister: It is a normal part of the PAYE cycle that changes in circumstances that cannot be reflected in in-year tax deductions need to be reconciled annually. This is not a Revenue error but the PAYE system not being able to react quickly enough to changes. PAYE works well for the majority of people, particularly those with stable circumstances, but because the processes remain fundamentally unchanged since they were introduced in 1944 there are limitations. The coalition Government are looking at how to reform PAYE further and make it more efficient.

HM Revenue and Customs (HMRC) charge 3% interest on late paid tax and pay 0.5% interest on repayments of tax.

Following HMRC's recent end of year PAYE reconciliation exercise for the years 2008-09 and 2009-10, amounts overpaid will be repaid together with any accrued repayment interest.

For individuals who have underpaid tax by less than £2,000 HMRC will where possible collect this through salary deductions by adjusting tax codes. Interest is not chargeable in these cases.

HMRC has put in place a new process for people with 2008-09 and 2009-10 underpayments that cannot automatically be paid through their salary deductions-generally those who owe £2,000 or more. Individuals in this position will be offered the same length of time to pay as those with smaller underpayments and not face interest, provided they engage with HMRC and agree to pay their underpayment. Individuals who owe £2,000 or more will also have the option where possible of paying up to £2,000 through their salaries.

People facing financial difficulties in paying will be treated sympathetically and, where necessary, will be able to spread their payments up to three years.

http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm101018/text/101018w0005.htm#1010199000586