The Pay as You Earn (PAYE) system has been hitting the headlines. H M Revenue and Customs is writing to thousands of people to tell them that they either owe tax or are owed a refund. If PAYE has been working effectively since 1944, what has gone wrong?

Most employees and pensioners are spared the chore of filling in a tax return because PAYE should collect the right tax automatically. HMRC provides the employer or pension company with a code, which is then used to work out how much tax to deduct from each payment. The code can be adjusted to take account of other income, such as the state pension and can reflect the higher allowances given to some pensioners, benefits in kind such as company cars and even untaxed interest.

Until last year HMRC operated twelve regional PAYE databases, but these have now been consolidated onto one system. Over 43 million records had to be transferred and over 2.7 million transactions are processed every day. Instead of storing information by employer, the new system stores it by individual. It also enables under and over payments – arising because someone has changed job or had a revised benefit for example - to be calculated automatically.

Far from being an IT disaster, the new system is a huge step forward, but the sheer scale of the changeover has inevitably caused problems. Where people have moved jobs and HMRC have not received the correct details - perhaps because the new employer has not filed the form P45 or used an incorrect national insurance number or date of birth - the system has been unable to match the necessary details and manual intervention has been necessary.   If you receive a calculation, check it carefully. Does the total pay agree with your payslips? Have the right allowances been given? Are benefits in kind or other income correct? You can find information on how to check the figures on HMRC's website by clicking the "PAYE Tax Calculation (P800) - find out more"; link on the home page.

And PAYE coding notices should always be checked carefully: only if they are correct will PAYE deduct the right amount of tax. Many of the codings I see are wrong.

So is the PAYE system past it at 66? I don't think so, any more than Winston Churchill was when he became Prime Minister at the same age. But it is facing challenging times, just as he did.

Paul Aplin OBE is a tax partner with A C Mole & Sons and chairman of the Technical Committee of the Institute of Chartered Accountants in England & Wales Tax Faculty. He can be contacted on 01823 624450, email paulaplin@acmole.co.uk. Bridgwater based tax partner Paul Kingdom can be contacted on 01278 446088, email paulkingdom@acmole.co.uk.