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PAYE – good news and bad news

Today the Government announced that some 250,000 pensioners will not have to repay tax underpayments that accrued during 2008/09 and 2009/10 because the PAYE system failed to tax their state pensions correctly. This is very good news. Less welcome is the announcement that HMRC plan to send out some 450,000 underpayment notices for the year 2007/08.

The text of the Ministerial Statement is set out below.

The 250,000 pensioners

Towards the end of 2010, HMRC identified some 250,000 pensioners who were likely to have underpaid tax in 2008/09 and 2009/10 because their PAYE codes did not take account of their state retirement pension, and held them back for review.

LITRG argued that if HMRC pursued those liabilities, Extra Statutory Concession A19 would almost certainly apply. The Government accepted this and have now decided not to issue the notices. This is pragmatic good sense and removes enormous worry and distress from the pensioners affected. It also probably saves HMRC money.

The year 2007/08

LITRG also argued that HMRC should write off any outstanding liabilities for 2007/08 from taxpayers on low incomes. We said that to send out demands for 2008/09 and 2009/10, and then out of the blue some months later an additional demand for 2007/08, was out of step with the HMRC Charter and ran counter to fairness and simplicity in the tax system.

HMRC have not accepted our view, but individuals should have even stronger arguments to resist demands for tax that should have been assessed so many years ago. And as we did for 2008/09 and 2009/10, we shall provide self-help material on this website for people caught up in this latest “tax bombshell”.

The Ministerial Statement

The text of the statement made by the Exchequer Secretary, David Gauke MP, in Parliament today is as follows:

“HMRC estimate that there are about 250,000 cases in respect of 2008-09 and 2009-10 where a taxable state pension has been paid by DWP and the tax due on this pension should have been collected through a tax code adjustment. These pensioners have not yet been issued with a notice of underpayment but would have a strong case for their underpayment to be written off in line with the concession. HMRC will not require these pensioners to claim the concession individually, but will instead write off all the relevant underpayments.

“HMRC are working to clear the backlog of cases from earlier years. They will work all cases where a taxpayer is due a repayment for earlier years.

“Further underpayment notices will not be issued for years earlier than 2007-08. For 2007-08, where possible, any amounts due will be included in the tax code for 2011-12 so that the money is collected over the course of the year through PAYE. HMRC will apply the same treatment to these cases as to those for 2008-09 and 2009-10. HMRC will not be collecting sums for less than £300 for that year and will allow people to spread payments in cases of hardship. Taking these concessions into account, HMRC expect to be in touch with around 450,000 people before the end of March to collect underpayments to the value of some £180 million.”


Contact: John Andrews (please use form at


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