Among those most likely to be affected are veterans who have taken a civilian job after leaving the Armed Forces, but who also draw a military pension. Pensioners with two pensions and those who have continued to work part-time after retirement are also more likely to be hit.
Taxpayers, who must complete their self-assessment tax returns before Jan 31, are being warned to check their paperwork again to make sure they are not affected.
Problems arise because various tax offices around Britain are failing to share information about taxpayers’ incomes on a central database.
People with more than one income, whether from pensions, PAYE employment or a mixture of the two, are being allocated their personal tax-free allowance multiple times. It means the tax codes issued for their various income sources are incorrect, so not enough tax is taken. Often the mistakes are discovered by HMRC years later, leading to unexpected tax demands.
HMRC insists that the problem is not “systematic”, and says the vast majority of tax codes are correct. But it accepts that millions of people have more than one code, meaning they could be affected. Accountants say they are seeing a rise in cases where incorrect tax codes have been issued, particularly when someone retires and takes a pension, then begins new employment.