The fallout from the PAYE tax error bombshell

2 min Read Published: 08 Sep 2010
m_bartosch /
m_bartosch /

It has emerged that nearly 6million people have paid the wrong amount of tax via Pay As You Earn (PAYE). While the majority of these people are due a tax refund around 1.4 million people have underpaid and will on average receive a bill for £1,428 each from the tax man. The real concern is that will be an unwanted strain on people’s already stretched finances.

Full details of how these unpaid taxes will be reclaimed, and what you can do about it, can be found in today's other post – PAYE tax error : The facts

But are there any wider implications of this latest mess up, beyond the obvious personal monetary pain?

Loss of faith

If you took the cynical stance you could argue that all the tax man is doing is claiming what is rightly his, while at the same time returning the money to those he’d overcharged. This is true, but taxation is such an emotive issue that you’d be hard pushed to hold a conversation with anyone on the issue without being bombarded with the concept of fairness.

The problem is that fairness is subjective and this is especially true when applied to taxation. This latest debacle does nothing to give people faith that the system is any way fair or indeed competent. The unpaid taxes date back to April 2008 but given that the most likely people to be hit with a tax bill are those whose circumstances changed mid tax year, don’t be surprised if tales of woe from those made redundant during the credit crisis appear in the press.

Pay tax on earnings from a lost job would be a bitter pill to swallow.

Growing discontent

But disillusion of ‘the system’ is the last thing the Government or the economy wants right now. David Cameron (along with most of the country) was impressed with George Osborne’s Emergency Budget. Selling the ideas of austerity and the tightening of the nation’s belt, without the need for huge tax increases, to get us out of the economic mess UK plc is in.

Cost cutting has been the driving theme since the coalition government was formed and to date the population has largely been resigned to this fate. The public sector is being scaled back and cuts to services are begrudgingly being implemented. We’ve even got to the point where today councils across the country have announced plans to switch off street lights in a bit to make their books balance. Obviously this idea has been met with some resistance. However, cutting costs is a bit easier to swallow than large scale tax rises.

But as mentioned earlier, 1.4 million people are about to get a significant tax bill through the post. I wonder what will go through their minds when they open their letters, with a demand for unpaid tax, before staring out of the window just in time to see the street lights go out over their uncollected dustbin bags.

While Cameron and co will argue that they are merely clearing up the mess left by the last government, add in the seemingly inevitable public sector walkouts we can look forward to and people might start getting fed up with the word austerity