Hundreds of thousands could miss out on tax rebate

HM Revenue and Customs (HMRC) is in the process of sending 5.7 million letters to employees charged the wrong amount via the Pay As You Earn (PAYE) system during the previous two financial years following a government computer glitch. Most – 4.3 million – are due a refund (see the 2010/11 Tax Breakdown guide and The Tax Rebate calculator).

Yet MoneySavingExpert.com has discovered HMRC is sending many crucial pieces of paperwork, such as rebate cheques, to the wrong address because it does not always keep track of people who move.

This is despite this information appearing on correspondence it receives from employers. Many of our readers mistakenly believe their employer updates their address because it takes care of tax payments.

One MoneySaver only got his £500 rebate because he knew his former landlord who forwarded his mail.

A further 1.4 million will have to pay back an average of £1,400 each.

Those who owe large sums of money may be hit with punitive charges if they fail to pay on time, though HMRC may be lenient where taxpayers have not got their letter.

Anyone who owes less than £2,000 will have it taken from their pay packets from April, though if they don't receive notification they face a nasty surprise in the spring..

Those who fill out a self assessment form are unaffected by the blunder.

Lucky escape

David Williams, a lawyer from Newcastle, had a lucky break when his former landlord forwarded him a letter from HMRC which contained a cheque for £500 in overpaid tax.

David says: "I am lucky enough to know my old landlord. He called me to inform me that I had an important looking letter. I would never have known I was entitled to a rebate if it hadn't been for this.

"I have updated my details on the electoral register, pay council tax and pay National Insurance and PAYE through my employer. I had never even thought about contacting HMRC.

"I wonder how many letters are sitting in the wrong house uncollected or thrown away by new inhabitants.

"When I called HMRC I discovered that although it had my correct employer who had provided the right address, the address on file was actually an old address I moved out of in 2008."

What should you do?

Those with more complicated tax affairs are more likely to have overpaid but the sheer scale of the blunder means everyone who has moved home and not received any HMRC correspondence to their new address should call the department to find out which address it has on file and whether or not they are owed money.

Also use our TaxCodeChecker to work out if you owe or are owed cash. Even if you paid the correct tax over the previous two financial years it is estimated a further nine million people from previous years may have been wrongly charged.

A spot poll we conducted on Facebook last week, which received over 1,000 responses, showed 32% of those surveyed had moved over the past two years but 60% of those who had moved have not told HMRC because many thought their employer handled their tax affairs.

If that figure is used against the 5.7 million people due to receive underpayment or overpayment notification this autumn/winter, there are over one million people who may not get the required paperwork.

HMRC stresses it is employees' responsibility to update their address with it. See the HMRC website for how to change your address.

Martin Lewis, MoneySavingExpert.com creator, says: "The sheer scale of the tax code blunder is monumental. Over five million errors have been found already and there are millions more suspected.  

"Even at a conservative estimate, if 5% of people have changed house without telling the Revenue in the last couple of years that would mean 285,000 missing out on on refunds or being told they owe money.

"I'd urge everyone to urgently do two things: first, check your tax code to find out if you're due money back or you owe money. Secondly, if you've moved recently, double check the Revenue has your new home address."

Will I be charged if I owe money?

Those who owe less than £2,000 won't face extra charges as the money will be taken automatically via PAYE in the next financial year, meaning they will receive less take-home pay for 12 months from April.

Yet if they don't get the letter, they may never know about the deductions, which could mean budgeting plans go out of the window.

Those who owe more will be expected to make a payment, though HMRC says this depends on your circumstances.

You could be charged interest for paying late, though HMRC says it will be lenient on those who don't receive their paperwork.

Why aren't address changes recorded?

Most employees have few dealings with HMRC as tax is taken by their employer under PAYE.

While employers put staff addresses on many key forms, HMRC does not always record changes on its files.

Even if you change your address with your employer and it files an up-to-date P14 (which details how much you earned in a tax year) with HMRC, your address will not be updated.

Only when you move jobs could HMRC update your address, but even then, this is far from certain.

When you leave a job you are given a form called a P45 detailing your earnings, which also contains your address. You give this to your new employer which in turn sends it to HMRC. However, the Revenue is unlikely to alter your address based on the information on a P45.

Only if you start a new job and don't have a P45 could HMRC change your address. In these cases, you fill out a P46 which you pass to your employer, which sends it to HMRC.

The reason the department will update your address here is because a P46 is the only major tax-related form employees sign.

HMRC says it is very unlikely any correspondence it receives from private pension firms or annuity providers will lead to a change of address.

Further reading/Key links

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