HM Revenue & Customs introduced a new system in 2009 to deal with the PAYE aspect of taxes. The system was supposed to simplify procedures and increase accuracy for taxpayers and HMRC. However, news has recently revealed that the system has produced an extra 15.7 percent of tax underpaid and a further 148 percent of tax overpaid. Figures show that overpayments add up to a total of £238m, much of which was paid by pensioners and others on lower incomes.

Specifically, the new system was introduced to make collection of tax simpler and ensure that correct tax codes were received by taxpayers. Unfortunately, this does not appear to have been the case in many instances, according to recent media reports.

There are many scenarios that can result in an overpayment by taxpayers, according to HMRC. These include working in several jobs during the year, starting a new job without handing in a P45 to the new employer, or working on several contracts in succession as well as claiming benefits in between periods of work. However, the new system was introduced to make these situations simpler to deal with.

HMRC has pointed out that the new system collected £250bn in taxes in 2009, which puts the overpayment figure into perspective. Many of the overpayments are due to HMRC but many more are due to other errors outside the control of HMRC. Many situations such as the ones above can make it difficult for a taxpayer to be given the correct tax code.

It is also possible that £1.6bn of tax overpaid for the years 2007-08 and earlier is still outstanding, with 18 million cases still unresolved. Any umbrella company contractors who think they may have paid too much tax in an earlier year should contact HMRC to check their liability.