Tax refunds come early this year
Around three million taxpayers will start to receive tax refunds from next week, two months earlier than last year, HM Revenue & Customs (HMRC) confirmed today.
This is because the annual reconciliation of Pay As You Earn (PAYE) for the tax year 2011/12 is starting earlier than ever before.
Up to 3.5 million taxpayers who have overpaid tax will receive an average repayment of £379, and up to 1.6 million will need to make up an average £537 shortfall in their tax, as they have underpaid during the year. In most cases this will be collected through their tax code.
These reconciliations are a normal part of PAYE processing.
Under PAYE, a tax code is allocated to every individual to reflect their personal circumstances. This seeks to ensure that the right amount of tax is deducted at source. Where an individual's circumstances change and these changes are not notified to HMRC, individuals could end up paying too little or too much tax during the year. The annual reconciliation process therefore checks whether the right amount of tax has been paid or whether any adjustments are needed, once all the information is provided to HMRC at the end of the tax year.
Around 85 per cent of HMRC customers do pay the correct amount of tax during the year, but end-of-year adjustments are needed for the other 15 per cent, to take account of changes in their circumstances. Examples of these include:
benefits in kind provided by the employer, which have changed during the year
where the customer has more than one job or pension and the tax free allowances are spread between them, or
if the customer has moved jobs frequently and has had gaps between periods of work.
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."