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Warning savers paying too much tax due to data error

Warning savers paying too much tax due to data error

Taxpayers are being advised to check the accuracy of their savings income figures held by HM Revenue & Customs, after several were found to be paying too much tax as a result of out-of-date figures.

The warning came from the Low Incomes Tax Reform Group, an initiative of the Chartered Institute of Taxation, which said it had encountered several errors in HMRC's forms.

Kelly Sizer, senior technical manager at LITRG, said a number of taxpayers had contacted the charity having noticed that “their pay as you earn codes for the current tax year, and tax calculations for previous tax years, have included out-of-date savings income figures.

“The majority are paying too much tax as a result,” she said.

But there can also be situations where people are not paying enough tax and might face a tax bill later, LITRG warned.

HMRC issues employees and pensioners with tax codes that contain tax estimates for their sources of income.

This is often done so that the taxpayer does not need to complete a tax return; instead, any tax due on their income is collected through PAYE.

But if HMRC does not update the estimates with actual figures after the end of the tax year, or if it simply carries forward an earlier year’s figure to later years, the taxpayer can end up paying the wrong amount of tax, the charity explained.

Ms Sizer said: “HMRC receive information from banks and other financial institutions after the end of the tax year, but this might not always be entirely accurate or complete. It is the taxpayer’s responsibility to advise HMRC of accurate figures.

“People might pay too much tax where their savings income has gone down as compared to earlier years. For example, pensioners who are supplementing their income with savings may be earning less interest year on year as a result.

“Another example is people who have received Payment Protection Insurance compensation, part of which is interest and is therefore treated as savings income. As a one-off payment, these amounts should not be carried forward in PAYE codes each year.”

LITRG is urging taxpayers to check their notices of coding and any tax calculations (P800 forms) they receive from HMRC carefully to make sure they are paying the correct amount of tax.

Savers can currently claim refunds for any overpaid tax from the year 2015/16 onwards.

An HMRC spokesperson said: “We always use the very latest information to prepare tax codes, and we only calculate someone’s tax when we have received all the information we are expecting from third parties.

"This can include pay and tax from employers, details of benefits they’ve provided, or bank and building society interest. This ensures we use the latest data.”

Paul Stocks, financial services director at Dobson & Hodge, said: "We seem to frequently come across issues as a result of HMRC tax coding notices – some being incorrect, some not having the tax codes applied in a sensible order and also issues arising due to the untaxed nature of savings interest.