Tax refunds for up to 3.5m people

Updated: 
MoneyUp to 3.5 million people are set to receive a tax refund from next week, but as many as 1.6 million face a bill for underpaid tax, HM Revenue and Customs (HMRC) has said.

Those who are due a rebate will get an average windfall of £379, while the typical shortfall for those who have not paid enough is £537, under Pay As You Earn (PAYE) adjustments for the tax year 2011/12.

The tax bills and refunds, which are a normal part of the PAYE process, are being handed out two months earlier than last year, meaning people will get their money back more quickly as well as knowing exactly what they owe, HMRC said.

Under PAYE, a tax code is allocated to taxpayers to ensure that the right amount of tax is deducted at source, but people can end up paying too much or too little when their circumstances change and HMRC is not told.

Around 85% of people generally pay the correct amount of tax during the year, but end-of-year adjustments are made for the 15% who do not, because they may have moved jobs or had gaps between periods of work, for example.

HMRC said it expects between 2.1 million and 3.5 million people overpaid tax in 2011/12, while between 1.2 million to 1.6 million taxpayers paid too little.

Stephen Banyard, acting director general for personal tax, said: "We are pleased that we are able to start this process more quickly than in previous years, giving money back to those we owe and delivering certainty to those with something to pay.

"We are improving the PAYE system further through the introduction of Real Time Information (RTI), which will make it easier for employers and pension providers to administer as they will tell HMRC about PAYE payments at the time they are made - as opposed to only at the end of the year - reducing the need for corrective actions at a later stage."

TaxPayers' Alliance campaign manager Robert Oxley said: "While some of us might get a bit of good news from HMRC, over a million taxpayers will soon see an unexpected bill land on their doormats.

"The taxman is giving with one hand and taking with the other because of an overly complex and burdensome tax system that can't keep up with people's changing circumstances. We urgently need a simpler, fairer system that leaves everyone with more cash in their own pockets to spend as they choose."

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