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The news that millions of ordinary taxpayers will be receiving tax calculations from HM Revenue & Customs (HMRC) over the next few weeks and months has made national headlines over the last two or three days. Here's a quick guide on the issue and what to do if you receive a 'tax demand'.

Background

Most professional advisers have been aware for a long time that HMRC were having significant problems with the implementation of their new 'Pay As You Earn' (PAYE) computer system. But the scale of the latest debacle is breathtaking: roughly 6 million calculations will be sent out over the next few weeks and months; around 1.4 million of which will tell the taxpayer that they have a tax bill to pay.

The root cause is HMRC's new computer system, designed to deal with the c40 million taxpayers in PAYE employment: there have been some significant setbacks and delays in bringing it 'online', and HMRC is now desparately trying to catch up with a stupefying backlog of tax calculations.

What do I do if I Get a Tax 'Demand'?

Those who are due a tax refund have little to worry about: the repayment should be made in due course. However, it is worth noting that if HMRC has made a mistake when calculating the refund, the taxpayer has a responsibility to tell them.

Of course the real problem is the 1.4 million who may have underpaid. Some have calculated that the average tax bill will equate to a month's salary.

There is hope, in the form of a 'concession' published by HMRC, that allows them to 'give up' tax where HMRC have been slow to act on information they have received, such as PAYE forms from a person's employer. Regular visitors to TaxationWeb will know that we have had some successes with 'ESC A19' as it is known, in the past - see for instance Taxpayer Wins Concession from HM Revenue and Customs.

Our dear friends at the Low Incomes Tax Reform Group (LITRG) have published some very useful guidance on what to do if you receive one of these calculations - PAYE Tax Calculations - Check and Challenge.

And, in a nutshell, that is the most important thing to do: CHECK THEIR CALCULATION BECAUSE IT MAY WELL BE WRONG.

Use LITRG's step-by-step Tax Calculations Guidance to help you.

Also, in some cases, HMRC may indefinitely postpone collection of the outstanding tax - where payment of the outstanding amount would cause undue hardship.

What are HM Revenue & Customs Doing?

HMRC has been notably reticent in terms of publicising this mass-mailing of calculations; I did wonder why they'd published their own guidance on ESC A19 - HMRC Delays in Using Information - in the 'What's New' section of their website on 1 September, and now I think I know why.  HMRC has also now issued its own guide on what to do if you receive a PAYE Tax Calculation and it's clear that they are concerned that taxpayers will assume that any underpayments will be written off; they are keen to stress that this will not be the case, and that taxpayers must contact them to claim the concession. Gone, it seems, are the days when an Inspector would automatically consider the concession without being prompted by the taxpayer...

But there may be more to come: in a report that was roundly critical of HMRC's handling of PAYE, the National Audit Office advised in July that there were almost 7 million such 'unresolved PAYE cases' waiting to be processed a little over a year old; and a further 18 million that were even older. At the time, HMRC forecast it would take up to 4 years to clear the backlog. Perhaps that's why they're dealing with the more recent cases first: they've already decided to 'write off' all of the older ones..?