The PAYE tax system is now working as it should…

. The taxman tells the employer what to do based on information given to them by the worker.

• PAYE is a simple idea – Pay as you Earn. It’s a way of paying tax by instalments but it can only get to the right figure every year if your affairs are very straightforward. In most cases there will be unders and overs that get sorted out by an adjustment to your tax code the following year. This happens to millions of people every year. IT always has done and always will do.

• To get everyone’s tax spot on each year we would all have to file annual tax returns. In fact most people on PAYE don’t do this. They can if they want to though….

• The previous Government added layers of complexity to the tax rules and calculations which the PAYE system was not capable of easily dealing with. (Tax codes can only charge 40% and not 50% tax if someone liable to the top rate has a second job, so they will always underpay tax through PAYE on that second job)

• Where you owe less than £2,000 any unpaid tax will normally be collected by adjusting your tax code for next year. So again, it’s good news. If you do owe tax, instead of being asked to pay it back straight away you’ll be given loads of time and the repayments will be spread over 12 months.

• Only a small proportion of the 1.4m PAYE taxpayers who owe money will be able to us what is being misleadingly called a ‘loophole’ to avoid repayment of any tax they have underpaid. It’s a concession and not a statutory right. ESC A19 only authorises HMRC to write off the debt if the taxpayer can prove they have provided all relevant info and HMRC has evidently not used it AND taxpayer could reasonably have expected their tax deductions to be right.

• The taxman may well ask for a full tax return for the year before agreeing to write off a tax debt. Do you have any undeclared casual earnings, investment income or rental income?

• If your affairs are complicated or you have any undeclared sources of income, do take professional advice from a specialist tax adviser before contacting the tax man.

• You may also want to speak to a specialist if you want one-off advice rather than an accountant to help you every year.