Millions more in line for tax rebates

About six million people are set to receive tax rebates averaging £400, while another million will learn they have underpaid their tax by about £600.

Her Majesty's Revenue and Customs (HMRC) said letters would begin going out in the next few months, with those owing money able to pay in stages.

It is the second year tax and National Insurance discrepancies have been identified by a new computer system.

HMRC said the number of cases would reduce "as the new system beds in".

Those who will be told they have underpaid tax are expected to owe between £500 and £600 on average.

Interest paid

"In a similar exercise last year, Revenue and Customs were criticised for being insensitive over their treatment of underpayers," said BBC news correspondent John Andrew.

"This time it's being stressed that they can spread what they owe over time by having their tax code adjusted."

The rebates, which relate to overpayments in 2007-08 or earlier and will include interest, are due to be settled by December 2012.

It is estimated these will cost the government more than £2bn.

"Money that is owed going back many years is now going to be automatically paid back as we get the tax system up to scratch," said an HMRC spokesman.

"We are getting cases that were left unreconciled up to date as quickly as possible. Anyone owed money will be paid back with interest without the need to contact us.

"The fact is there will always be some cases at the end of every tax year that require an under or overpayment to balance but these cases will reduce as the new system beds in."

MPs critical

Last year, HMRC identified 4.3 million people due refunds for overpayments and some 1.4 million who owed the taxman after paying too little.

The amounts owed averaged just over £1,400, while a further 900,000 underpayments of up to £300 were written off.

The House of Commons Public Accounts Committee criticised HMRC's management of the income tax system.

The MPs said up to 22 million people had not been taxed accurately since 2004-05 causing "unacceptable uncertainty and inconvenience".

Then earlier this year, almost five million taxpayers were informed by HMRC that they had either paid too much - or too little - tax in the last financial year, 2010-11.

John Whiting of the Chartered Institute of Taxation (CIOT) said this was becoming a regular feature of the tax system.

"These are reconciliations, checks and cross-checks to make sure you have paid the right amount of tax," he said.

"Last year we had a great batch because they [the Revenue] hadn't done it for a few years.

"This year they are beginning to get into the swing of it," he added.

HMRC Permanent Secretary Dave Hartnett was widely criticised last year for a lack of sympathy towards those facing an unexpected bill, after he said tax reconciliation was a routine measure.

He later apologised and insisted HMRC did "not underestimate the distress caused to taxpayers".