Many employees wrongly taxed on benefits

Employees receiving benefits such as cars and health club memberships could have paid incorrect tax due to errors by HM Revenue and Customs (HMRC).

Employers are urged to offer support to staff as HMRC tries to recover around £2 billion that has been underpaid during the last two years.

An internal review has concluded a fifth of all tax records held by HMRC could be incorrect, and as many as 1.4 million people owe on average £1,500.

Nearly six million people are due to receive a letter informing them they have paid the wrong amount of tax from 2008 to this year, via the pay-as-you-earn (PAYE) scheme.

HMRC is also trying to repay £1.8 billion due to 4.3 million people via changes to their tax code for the next year, 2011-2012. The introduction of a new computer system revealed the mistakes.

Simon Parsons, director of payments, benefits and compliance strategies for Ceridian, said: “Tax on employee benefits, such as cars and health club membership should be reported annually as part of an employee’s gross earnings.

“However this tax is payable in arrears and therefore is not reported until July which is after the end of the tax year.

“This has resulted in the information not being integrated into the new HMRC database system. What this means in practice is there is now a backlog of payments to be claimed by HMRC and in many cases individuals are owed a rebate.

“While employers are not under any obligation to assist their employees, many employees will see this as a work related issue; therefore, businesses are advised to offer proactive support by helping employees solve or explore tax related problems – perhaps by offering advice and support via the intranet or an open forum.”

A statement from HMRC said: “The vast majority of the 40 million people who pay through PAYE deductions are correctly taxed but because circumstances change during the year there will always be a minority who have paid either too much or too little.

“Ensuring the right tax is deducted at source from salaries and pensions is a normal part of the PAYE cycle.

“This year, and going forward, the new IT system will mean more people paying exactly the right tax at the time then ever before.”

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