A whopping 450,000 people will collectively face extra tax demands of 180 million after underpaying via the pay as you earn system.

The latest batch of underpayments relate to the 2007/08 tax year, and comes on top of the 5.7 million errors during 2008-09 and 2009-10, resulting in that number paying the wrong amount of tax.

HM Revenue & Customs (HMRC) will write off tax owed when the sum is less than 300, while it will allow other taxpayers to spread payments (see the 2010/11 Tax Breakdown guide and The Tax Rebate calculator).

Hundreds of thousands more are owed money for the 2007/08 year but HMRC is unaware of the exact figure or how much they'll get back.

Many of those who owe or are owed money for 2007/08, who are now being written to, will be among the 5.7 million affected in later tax years.

An HMRC spokeswoman says: "HMRC has committed to closing off old tax cases as quickly and accurately as possible.

"This means most people will get repayment cheques, but a minority will have some tax to pay."

Previous tax code errors

HMRC came in for heavy criticism in September last year when it emerged almost six million people had paid the wrong amount of tax during the previous two financial years.

Around 1.4 million people will be required to pay an average of 1,400 each to make up the shortfall, while a further 4.3 million will receive rebates of around 420.

The high number of discrepancies was thrown up due to the use of a new IT system, which holds all the information on an employee in one place.

Exchequer Secretary to the Treasury David Gauke says HMRC had been working hard to clear the long-standing backlog of unreconciled cases, and since September it had made rapid progress.

He says by the end of last year people had received either a refund notice or a calculation of how much tax they owed in 90% of cases where HMRC had received all the information it needs.

Gauke adds that HMRC is also working to clear the backlog of unreconciled tax cases from earlier years, but would not be chasing people for unpaid tax for periods before the 2007-08 tax year, although it would offer refunds to people who overpaid.

Anyone who has changed address over the past few years and not told HMRC should also update their address as soon as possible. Also check if you owe or are owed cash as any letters may have gone to a former home.

Pension demands written off

It also emerged today that 250,000 retired people had underpaid tax on their state pension after a tax adjustment code was not applied during the 2008-09 and 2009-10 tax years.

But Exchequer Secretary to the Treasury David Gauke said today in a written ministerial statement the outstanding tax these people owe would be written off.

Further reporting by Guy Anker.

Further reading/Key links

Tax help: 2010/11 Tax Breakdown, Taxing Times, Tax Rebate calculator

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