Seven million caught in huge tax blunder: Six million get £400 back... but 1.2million face shock demand to pay £600 MORE

Letters will start landing on doormats this weekend

• More than 150,000 pensioners to be told they did not pay enough

The biggest tax blunder in a generation has trapped seven million people, the Mail can reveal today.

Six million of them will receive letters in coming weeks saying they have overpaid and can expect £2.5billion back - an average of £400 each.

But a further 1.2million, including more than 150,000 pensioners, face the shock of being told they did not pay enough. On average, they will have to find £600 each.

Shocking: 1.2million people - including more than 150,000 pensioners - face being told they did not pay enough tax and will have to pay back £600 each

HM Revenue & Customs notifications to the winners and losers will start landing on doormats as early as this weekend.

The move is the latest in a chapter of errors at the beleaguered agency, which last year admitted it had made mistakes in the tax affairs of 5.8million people.

It was suggested that this was a one-off until, this summer, officials conceded that as many as one in six people may have paid the wrong amounts in 2010/11.

The 1.2million will start to receive demands to pay back around £720million.

They will be invited either to make an immediate payment or have their tax codes adjusted so that the money is clawed back gradually.

Demands for repayments from individuals will prompt controversy at a time when HMRC has admitted reaching a settlement with Goldman Sachs, which left the taxpayer shortchanged by up to £8million. Another deal with Vodafone is alleged to have cost billions.

Around £2.5billion will have to be found to refund all those who have been cheated over the past seven years, and the sum will spiral further because 15million cases remain 'open'

Dave Hartnett, HMRC's permanent secretary on tax, has faced calls to resign after admitting 'making a mistake' in allowing Goldman to be let off paying its full tax bill following a dispute involving an offshore company used to shield bankers’ bonuses from national insurance.

A broader trawl through tax cases dating back to 2004 has identified enormous numbers of cases where people have had too much tax taken from their pay packets.

Six million will be able to choose between a cheque or a bank payment refunding around £415 on average.

‘This news will come as a nasty surprise to some people, and as a nasty surprise to the Government that will have to find the money for millions of reimbursements'

TORY MP JESSE NORMAN, MEMBER OF COMMONS TREASURY COMMITTEE

The sums will vary enormously and include interest, with repayments being made by the taxman from next month to the end of next year.

Around £2.5billion will have to be found to refund all those who have been cheated over the past seven years, and the sum will spiral further because 15million cases remain ‘open’.

Underpayments dating back more than two years are expected to have to be written off in another hit to the public purse.

The fiasco has arisen after a catastrophic miscalculation in the way workers’ tax bills are calculated.

Whitehall sources insist the failure of the last Government to reform the complex ‘pay as you earn’ system is to blame and say a new computer system is identifying millions of errors.

A Government source said: ‘We have said we aim to have the millions of open cases going back to 2004-05 resolved by 2012, and this shows we are on course to do just that as we continue to get a grip on the mess Labour left us.

‘Money that is owed going back many years is now going to be automatically paid back as we get tax system up to scratch. We are putting right the cases that were left unreconciled as quickly as possible.

‘If you are owed money you will be paid back with interest.’

Sources claim the impact of the repayments on the public finances will be minimal. ‘Legacy cases have already been taken into account in forecasting the public finances. HMRC paying out this money will not have an effect on the  deficit,’ said one.

 

Since the last round of mistakes was admitted, almost 150,000 people have appealed against repayment demands on the grounds they had done everything possible to ensure that they paid the right amounts in tax, keeping HMRC informed about all of their income.

An internal HMRC memo, leaked to MoneyMail, suggests that even in cases where the taxman made the errors appeals are being turned down because taxpayers ‘should have picked up on them’.

The note, written by a technical adviser to a tax officer dealing with an appeal, admitted the ruling seemed ‘very unjust’.

Those paying the wrong amounts are often those with a variety of sources of income, such as several pensions or multiple jobs, or who have switched jobs during a tax year. Previously, HMRC has written off debts of less than £300, but this year underpayments of as little as £50 are expected to be collected. Sources say any amount of overpaid tax, however small, will be refunded.

Conservative MP Jesse Norman, a member of the Commons Treasury committee, said: ‘The Revenue is still having to deal with the legacy of ill-judged reorganisations and change under the last government.

‘This news will come as a nasty surprise to some people, and as a nasty surprise to the Government that will have to find the money for millions of reimbursements.’