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HM Revenue & Customs has reduced tolerance levels for underpayments back to their previous amount of £50. Pay As You Earn taxpayers who have underpaid tax in the 2010-11 tax year will have a £50 tolerance applied, meaning that only amounts larger than this will be collected.

When the National Insurance and PAYE System was introduced last year, approximately 15 million taxpayers were affected by errors, which resulted in overpayments and underpayments of tax. As a gesture HMRC agreed to increase the tolerance for underpayments to £300, resulting in many underpayments being written off. It has been estimated that 1.2 million taxpayers owe tax for the year 2010-11, and the tolerance has been reduced to £50.

HMRC applies a tolerance to the collection of underpayments to avoid unnecessary costs of collecting relatively small amounts of tax. According to a spokesman for HMRC, the increased tolerance of £300 was only ever intended to be a temporary measure as two years tax were collected simultaneously. The technical director of the Low Incomes Tax Reform Group, Robin Williamson said:

“Going back to the £50 level is perfectly legitimate for the majority of people involved. But there are some-particularly pensioners on low incomes, who may have had their payments written off in the previous two years and will find they will have to pay the accrued limit.”

Hopes are being placed on the introduction of the new real-time system which is expected to be introduced in October 2013. It is hoped that the new system will prevent errors occurring.

Tax return services

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