Personal finance: Red faces at the Revenue

Some 800,000 incorrect tax demands have gone out

AS TOMORROW'S deadline looms for getting tax returns to the tax office, a spate of horror stories is emerging about an Inland Revenue mistake that led hundreds of thousands of people to be sent the wrong tax demands.

The Revenue has admitted that more than 800,000 taxpayers were issued with incorrect tax demands on 27 December. The demands, also known as assessments, appeared to require them to pay double the amount they owed by 31 January.

Ironically, the blunder was caused by an attempt to make it clearer to taxpayers how much they owed. The tax assessments set out the payments owing for the year 1998/99, rather than breaking them up into instalments. But in doing so, they failed to make it obvious that only half the amount was due for payment by the end of January.

The Revenue sent out a letter of apology soon after the blunder came to light, telling taxpayers that the assessment sent out in December might have been calculated by the wrong formula. The farce was compounded when the Revenue was forced to send out further letters of apology making it clear that only some - not all - of the assessments were wrong.

Tax agents are demanding that the Inland Revenue show flexibility about the demands and promises not to charge interest to taxpayers affected by the mistake.

The blunder is the latest in a series caused by the Revenue's new self- assessment system. At the same time a year ago, the Revenue's spanking new computer system issued upwards of 4 million tax demands. Tens of thousands of them incorporated a rather embarrassing mistake: the system had mistaken debits for credits - and vice versa. The assessments showed refunds due to people who owed tax, and charged people who were owed refunds.

The public's experience of the new system has exposed further absurdities.

Andrea Craig, a 39-year-old health care consultant from north London, was particularly conscientious when she discovered a Revenue error. Last year her office, London Provincial 10 in Gateshead, overlooked a line in her tax return specifying share options due to her. They issued her with a refund.

Knowing that she owed tax, Andrea contacted London Provincial 10, who admitted their error and said they would send her an amended tax demand before 31 January (so that she could pay in time).

Unfortunately, Andrea became fully self-employed shortly afterwards and her papers were sent to a King's Cross office. No amended demand was forthcoming.

"The next thing I knew was in February, when they sent me a new assessment saying I owed them money plus interest because I was overdue," she says. She filled out an appeal form, only to find herself called up by a Revenue official telling her she had "no reasonable grounds for appeal". Only months later, after writing to three senior managers and spending hours on the phone, did Andrea get an apology.

Last week we published an article on tax returns by Sara Williams along with extracts from her book, the `Lloyd's Bank Tax Guide'. The guide is available to readers of `The Independent' at a reduced price of pounds 5 inc p&p (normal retail price, pounds 7.99). To take advantage of the offer, please send a cheque for pounds 5 to Independent Reader Offer, Profile Books, 58a Hatton Garden, London EC1N 8LX