Since the early 1980s, the Inland Revenue (now HMRC) and pension providers have not been deducting the right amount of tax from a number of small pensions, with the result that an estimated 420,000 pensioners have been undertaxed (see our previous article). In about 2005, HMRC decided to put the taxation of those small pensions on a proper footing, in accordance with their own regulations. However, they did little to inform the pension providers of their change of policy, and nothing at all to tell the pensioners affected.
In July 2007, a report from the National Audit Office revealed that although HMRC would not be able to implement any changes before 2008/09 at the earliest, the Department still intended to collect arrears of tax for 2007/08 as well as for 2008/09. LITRG and the other charities objected strongly to HMRC collecting any arrears of tax that arose before pensioners had been warned. We raised no objection to HMRC collecting the right amount of tax in future; but to go back to earlier years would be conspicuously unfair, particularly as underpayments had arisen almost entirely through HMRC implementing the wrong procedures, and the pensioners themselves would have had no way of knowing.
HMRC told us that they had no discretion to write off arrears of tax arising after 6 April 2007. But Philip Baker QC, a leading tax and human rights barrister acting pro bono, advised us that HMRC actually did have discretion to remit any arrears that arose before the pensioners who were undertaxed were identified and informed of their position. Indeed, if HMRC insisted on collecting the arrears, there were good grounds for bringing an action for judicial review against them for abuse of power. We showed that Opinion to HMRC and to the Government minister responsible, and have this afternoon received confirmation that arrears for 2007/08 will be written off.
That still leaves, in many cases, some arrears for the current year 2008/09; but HMRC say they are confident that they can communicate quickly with the pensioners likely to be affected, and spread the arrears where there is hardship. We sincerely hope that will prove to be the case.
LITRG is grateful to the charities who joined us in this campaign and have worked hard over the last year to bring about this result. In particular we are greatly indebted to Philip Baker whose advice, we believe, was instrumental in persuading HMRC to think again. We are also obliged to HMRC, and to the responsible Minister Jane Kennedy, for listening to our concerns.
The text of the Minister’s letter to Patrick South of Age Concern can be accessed below.
Contact: John Andrews (Tel: 0844 579 6700 Fax 0844 579 6701)
To open the file click below:
Letter from Jane Kennedy