HMRC Alert: 2.6 Million Households Risk Losing £8.9bn in Tax Overpayments
Millions of UK taxpayers have been issued a stark warning that they may never recover substantial sums of money after new research revealed widespread overpayments to HM Revenue and Customs. According to findings from accountancy firm UHY Hacker Young, approximately 2.6 million people who submitted self-assessment tax returns paid an estimated £8.9 billion more than they actually owed to HMRC during the last financial year.
The Payment on Account System Under Scrutiny
The significant overpayments are largely attributed to HMRC's Payment on Account system, which calculates tax liabilities in advance based on the previous year's income. This mechanism, designed to spread tax payments throughout the year, has come under criticism for frequently resulting in taxpayers paying more than their actual liability.
Neela Chauhan, a partner at UHY Hacker Young's London office, emphasised the gravity of the situation: "Millions of people are paying the wrong amount of tax simply because HMRC is almost guessing what they earn. For too many people, this will go completely unnoticed."
Growing Concerns Over HMRC's Error Checking
Experts have highlighted that the responsibility for identifying overpayments has increasingly shifted onto taxpayers themselves. HMRC has significantly reduced its internal assessment procedures to detect errors and overpayments, meaning many mistakes go uncorrected unless individuals proactively identify them.
Chauhan further explained: "HMRC won't always correct overcharging mistakes automatically. If you don't check your tax code or your PAYE calculation, you may never get your money back. The onus is on taxpayers to spot HMRC's errors."
Who Is Most at Risk?
Certain groups of taxpayers face particularly high risks of overpayment:
- Individuals with non-PAYE income sources
- Those receiving company benefits
- People whose financial circumstances have recently changed
- Employees no longer receiving paper tax code notices
The shift away from routinely issuing paper tax code notifications has compounded the problem, leaving millions potentially unaware that their tax code is incorrect and that they are being overcharged.
The PAYE System's Vulnerability to Errors
Overcharging through the PAYE system frequently originates from HMRC issuing incorrect tax codes. When taxpayers' circumstances change—such as alterations in employment status, additional income streams, or changes to benefits—and HMRC lacks up-to-date information, the department continues to deduct tax based on its own estimates without verifying these calculations with the taxpayer.
The Challenging Reclaim Process
Even when overpayments are identified, reclaiming the money presents significant challenges for taxpayers. The process is often described as slow and frustrating, with many individuals facing:
- Extended waiting periods for responses
- Written requests being frequently ignored
- Phone calls going unanswered or unresolved
- Complex documentation requirements
Essential Steps for Taxpayers
Financial experts strongly advise all taxpayers to take proactive measures:
- Regularly review your tax code for accuracy
- Carefully check year-end PAYE summaries
- Promptly notify HMRC of any changes in circumstances
- Keep detailed records of all income sources
- Seek professional advice if uncertain about tax calculations
The research underscores a critical need for greater awareness and vigilance among UK taxpayers, as billions of pounds remain at risk of being permanently lost through systemic overpayment issues within HMRC's current tax collection framework.
