One million people are taxed wrongly because of errors by the Revenue, a spending watchdog has disclosed. The National Audit Office (NAO) found that, in the year to April, mistakes by officials at HM Revenue & Customs resulted in taxpayers making £157 million of overpayments and £125 million of underpayments.

The findings follow revelations this week that the Revenue is seeking powers to raid bank accounts to recover taxes. The proposals would short-circuit the current requirement for the taxman to seek a court order before taking money from an account.

The Revenue’s desire for greater powers, coming when it has been shown to be wrongly billing more than a million taxpayers, has triggered calls for individuals to be given more protection. John Whiting, tax partner at PricewaterhouseCoopers, the accountant, said: “We need a taxpayers’ charter so that if people feel something is going wrong, there is a document that gives rights and responsibilities to them, as well as to the Revenue.”

The NAO report said the Revenue got its sums wrong in more than 1.6 million cases but some were spotted before tax demands went out, so the actual number of cases where errors led to incorrect tax payments was 1,043,000, a rise of 82,000 on the previous year. The increase occurred mainly among cases involving the pay as you earn (PAYE) system, where tax is deducted by employers, rather than among self-assessment cases.

It said this was largely because about 1.6 million taxpayers had, in the past three years, been removed from the ranks of self-assessment, thus putting greater pressure on the PAYE system.

Although the average figures for overpayments and underpayments were quite small, at £290 and £250 respectively, the report said the errors had an impact because taxpayers expended a lot of time, effort and worry in putting matters right. In a handful of cases where errors resulted in large underpayments taxpayers faced clawbacks of more than £5,000.

The mistakes also tended to be concentrated among vulnerable people, such as pensioners, agency workers and those holding down several jobs.

Although the number of errors increased, the size of the taxpaying population rose even faster, so the Revenue achieved a slight improvement in accuracy, correctly processing 95.4 per cent of the 36 million income tax cases. This was slightly better than the previous year’s 94.7 per cent. PAYE cases achieved 95.1 per cent accuracy, while self-assessment scored 96.5 per cent.

The NAO said the need to deal with some cases manually was a significant cause of error, as was the increased complexity of processing work as people change jobs more frequently.

Sir John Bourn, head of the NAO, said: “The Revenue has improved its processing of income tax returns but there are still substantial numbers of taxpayers affected by processing errors.’’ Mr Whiting added: “If you suspect that your tax bill or your notice of coding is wrong, you should say so.”

Mark Atherton: Analysis

If you think your tax coding is wrong, the first step is to assemble your ammunition for the battle. Stephen Herring, tax partner at BDO Stoy Hayward, the accountant, said: “Work out precisely why you think the coding is wrong, then look at your documents to see if you can supply evidence to back up a challenge.”

Other common triggers for incorrect tax codings are a change of company car, resulting in a different level of benefit in kind, or a failure to credit the full amount of tax relief that is due on pension contributions.

The next step is writing to your local tax office, quoting your tax reference and your national insurance number. Keep your letter simple and do not overload it with detail, Mr Herring said.

A reply should come in a couple of weeks. Richard Proctor, of Grant Thornton, the accountant, said it is worth following up with a telephone call if you have not heard anything after about three weeks. “Revenue staff are generally very helpful and will take what you say at face value,” he said.

Although tax officials are usually happy to accept an individual’s information, they are entitled to ask for additional proof. However, more detailed questioning is the exception rather than the rule, according to Mr Proctor.

He advises taxpayers to challenge their tax coding if they suspect it is wrong: “Most people don’t bother to check their coding, so many of them end up paying more tax than they should.”