Revenue's £300m a year tax error

By Paul Lewis
BBC Radio 4's Money Box

PAYE is the method by which tax is deducted from our wages or salaries

The Revenue is taking nearly £300m a year too much off our wages and salaries, according to the government's own auditor.

The money is being wrongly taken through the PAYE system used by employers to deduct the tax we owe from our monthly or weekly pay.

But the National Audit Office has revealed there were "significant and widespread errors" in the system.

As a result, employers took £295m a year too much which was "potentially refundable" to the people concerned.

John Whiting, a partner with accountants PricewaterhouseCoopers, told BBC Radio 4's Money Box programme: "PAYE means pay as you earn but it could also mean Pretty Accurate Yet Estimated."

"If you've got very simple affairs and you just get the basic tax allowance of £4,895, and let's say just a salary, then PAYE will usually knock off the right amount of tax.

"But where it can go wrong is if you change jobs, have more than one job, move from a job to a pension, have a bit of freelance earnings, or are over 65 with two or three pensions."

Fear factor

Look at your PAYE code, check it's right John Whiting, accountant

Mr Whiting also warned people on higher salaries that there are new problems for them since they no longer automatically get a self-assessment tax form.

"People who have a good salary taking them into the top rate tax bracket, and get a bit of interest or dividends on their savings, find that the Revenue is trying to collect the extra tax on that via the PAYE code.

"But by its nature that is bound to be a 'guesstimate' of what you are going to get."

And he said it was always worth checking your tax code to see if you might be over-paying.

"People should engage brain and disengage the fear factor.

"Look at your PAYE code, check it's right. If you are under 65 and the code is anything other than 489L you need to ask: why is it different from that?

"You should get a coding notice from the Revenue. If you don't, then ring up and ask for one. And if you can't understand it, ring up too. Always investigate."

The National Audit Office said the Revenue had "prepared an action plan to correct these weaknesses over a number of years".

BBC Radio 4's Money Box was broadcast on Saturday, 15 October, 2005, at 1204 BST.

The programme was repeated on Sunday, 16 October, 2005, at 2102 BST.