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Double blunder over contracting-out rebates

The Inland Revenue is recalculating 800,000 contracting-out payments which were aimed at compensating policyholders for an earlier miscalculation of the contracting-out rebate.

The double bungle started when admin delays following the introduction of a new computer system meant that the Contributions Agency, the body which was then responsible for rebates, was late in processing National Insurance Contribution rebates for the 1997/98 tax year.

The agency agreed to compensate people for late payment by increasing rebates by 0.5 per cent for every month of delay. The Revenue took over responsibility for the compensation and discovered it had miscalculated the extra rebates.

The error happened when the Revenue calculated compensation at the time it processed the information and not when it paid compensation. It is contacting schemes and providers to assess the extent of the shortfall.

A Revenue spokeswoman says: “The Inland Revenue has identified a number of cases where the amount of 0.5 per cent compensation due was underpaid. Additional payments will be made for approximately 800,000 individuals, although it should be noted that in 85 per cent of cases the amounts will be less then £20.”

Hornbuckle Mitchell Group director Viv Belcher says: “This is unbelievable. They do not seem to be able to administer the contracting-out system, which is worrying.

“It is particularly difficult to police their errors because contracted-out contributions often only start being paid 18 months after you have given the advice.”

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