HM Revenue and Customs’ (HMRC) new pay as you earn system is sending out the wrong tax code, warns the Chartered Institute of Taxation (CIOT).
The CIOT has said that the wrong information is being sent out that, unless corrected, may reduce employees’ pay packet by £1,295 a year.
HMRC said that anyone who has changed jobs over the past couple of years would be more likely to have received a duplicate or inaccurate coding notice, as its new system failed to account for the change in jobs and assumes that workers have multiple jobs.
People with more than one job normally have their personal allowance, which is not taxed, counted against the job with the highest wage. Personal allowances stand at £6,475 for most people under 65 for the coming tax year.
However, the computer error means that the personal allowance would be split between two jobs or allocated to a non-existent job, meaning that current employers will deduct too much income tax – a possible £1,295 over the year or £108 a month.
Pensioners could also see a drop in their income if the wrong tax code is issued to pension companies.
Andrew Hubbard, president of the CIOT, described the issue as a “serious teething problem” and said: “Most people on PAYE are used to assuming that what the taxman sends them is correct. Many file away coding notices without even bothering to check them.
“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.”
In a statement, HMRC apologised for any “inconvenience” caused.
Tax code information that applies to the coming tax year, April 2010 to March 2011, is usually sent to people in the PAYE system and pensioners in a P2 notice between January and March.
Last November, HMRC switched off 19 key online services, one of which was its PAYE system, in order to test a system upgrade.