PAYE umbrella contractors can usually rest assured that there will be no nasty surprises for them when HMRC reconciles its tax books each year.  However, contractors for whom umbrella companies are not their only source of income, or have made the transition from permanent employment to freelancing during the last year, may need to take a closer look at their tax affairs.  HMRC will be writing to 4.7 million people explaining that either they have paid too much or too little tax last year – and it intends to actively pursue those who owe more than £50.

On a brighter note, 3.5 million people will find that they are owed a tax rebate, which is likely to be in the region of £340.  Nevertheless, an estimated 1.2 million letter recipients will find that they owe the Revenue a tax bill of between £500 and £600.  In previous years, HMRC had only chased those who owed £300 or more.  However, in these economically tough times, it now plans to go after anyone who owes in excess of £50.  In addition, to tighten the screws even further, the legal time limits that last year allowed some people to avoid paying overdue tax have now been abolished.

However, it is not only those who are working who can expect to receive an HMRC letter.  Mike Warburton, a senior tax partner at Grant Thornton, warns that those who started drawing their basic state pension over the last tax year – around 160,000 people in all – could face a tax demand of up to £1,000.  This is because they unwittingly continued to have their full personal allowances attributed against other sources, an error that very easily sees underpayments mount up, he explained.

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