Tax errors: taxpayers who owe more than £2,000 will not pay interest

Taxpayers who owe back-dated tax because of tax coding errors will not be charged interest, the head of the HM Revenue & Customs revealed today. Dame Lesley Strathie, chief executive of HMRC, disclosed that ministers had insisted on a system for exempting those who owed more than £2,000 from being charged interest. Only those who fail to engage with the Revenue over repaying their outstanding tax within three months and seven days of getting a demand could still be charged interest. "Ministers have asked us to put in place a new process where anyone who receives the form P800 and has more than £2,000 to pay, the notification will tell them that we will write to them about arrangements to pay. If we agree with that customer that they will pay, then they will not be charged interest," she said. A concession to write off the tax bill of those who owe £300 or less which was announced last week has already cost the Treasury £160m. Giving evidence to the Treasury select committee this morning, Strathie said "increased accuracy" of the National Insurance and PAYE IT system was the cause of letters going out to millions of taxpayers in the next few months telling them the tax they had paid was incorrect. She said the new system had identified underpayments and overpayments as part of an "annual reconciliation", and emphasised that HMRC was not issuing "demands for payment", but rather "assessments of the tax that has been paid". Two weeks ago the Revenue said it would contact about six million taxpayers , asking 1.4 million to pay a further £2bn tax, while 4.3 million are due refunds totalling £1.8bn. Since then the Guardian has revealed that the Revenue has about 18 million open cases dating back six years – a figure confirmed this morning. The Treasury select committee was also told that ministers have known about the scale of the problem since early July, and that Labour ministers knew in the last parliament that the problem was looming. Strathie insisted that the HMRC was "fit for purpose", adding: "I understand ... when something is portrayed in the media as a mistake that people lose confidence in our workforce." She added: "I do want put very clearly on the record that these are not mistakes by our workforce." She emphasised that HMRC was not issuing "demands for payment", but rather "assessments of the tax that has been paid". Some 14,000 people had already been reimbursed tax that was overpaid, and the "bulk" of the nearly six million people affected should be notified by the end of December, Strathie said. "It is very unfortunate that we have failed in this story to make the point that 4.5 million people are going to receive a cheque before Christmas," she said. Dave Hartnett, permanent secretary for tax, renewed his apology today for the errors that have left millions of people facing demands for back-tax . Hartnett initially refused to apologise for the situation in an interview with BBC Radio 4's Moneybox programme last week. HMRC rushed out an apology soon afterwards. Giving evidence to the influential Treasury Select Committee today, Hartnett said he regretted his "insensitivity" in not recognising immediately that people affected deserved an apology. "I know how to apologise, I've had to do it before," he said. "I did not do it then and I am sorry for that." He said he was "specifically apologising for the situation in which people find themselves". "I think we could have done better in helping taxpayers to prepare for this," he added. The committee will now decide whether to conduct an inquiry into the HMRC and its effectiveness.