Two million to be landed with shock £500 tax bill

AROUND two million pensioners and workers are to be hit with shock tax bills of about £500.

The bills will be a serious blow because many will have thought that the correct amount of tax had been deducted from their pay or pension income.

From next week, the taxman will send out letters telling them that the amount they owe will be deducted from their income next year.

But a further 3.5million are to receive a cheque for between £350 and £500 because their employer took too much from their salary.

The figures have been released by HM Revenue & Customs following its annual review of tax collected via the pay as you earn system.

Through this scheme, employers and pension companies deduct tax from salary or other income before it reaches a person’s bank account.

Around 85 per cent of people pay the right tax every year.

But frequently payments can go wrong when a person switches jobs, retires or takes a break from work – for example, by going on maternity leave.

Pensioners in particular can be caught out because they can have several sources of income, often taxed at different rates. It is only when HMRC runs analysis of what everyone has paid for the tax year just finished – which ran from April 6, 2012 to April 5, 2013 – that it works out that errors have occurred.

Elaine Clark, f ounder of the accountancy firm Cheap Accounting, said: ‘It’s very hard on people who have budgeted carefully through the year, and done their best to stay on top of the finances, to suddenly discover they owe tax through no fault of their own.

‘Understanding your tax is almost impossible for most ordinary people.

‘No fault of their own’

No matter how diligent you are, things can go wrong.

‘What people need to remember is that if it’s not their fault, and their employer or pension company has made a mistake, then they can fight these bills.’

Letters about under or overpayments will start arriving next week, and continue until October.

Those who paid too much tax will be sent a payable order, which will arrive up to two weeks after the first letter. Anyone who owes HMRC will have the tax deducted monthly from their income in the 2014/15 tax year.