Incorrect tax codes affect millions of employees

There has been a rise in the number of queries that HM Revenue and Customs (HMRC) has received concerning incorrect employee tax codes.

According to HMRC accounts, the tax authorities were faced with 20 million code queries in March compared with 16 million in the previous year.

The National Audit Office (NAO) has calculated that as many as 4.5 million employees may have had too much tax taken from their pay as a consequence of being allocated the wrong code, and that HMRC may have to refund as much as £1.6 billion.

Another 1.5 million workers, however, may have paid too little tax to the tune of £400 million.

HMRC put the problem down to an increasing number of coding discrepancies caused by changing work patterns.

But the tax authorities believe that 77 per cent of the 20 million cases it is dealing with will be tax neutral.

Anyone whose tax code is incorrect, the Revenue said, would be informed and their code would be altered to reflect the amount of tax they had overpaid or underpaid.