For two decades HMRC and its predecessor the Inland Revenue have been authorising pension providers, wrongly, not to deduct tax from certain pensions. In 2005 HMRC noticed this error, then in July 2007 announced that it was proposing to collect the unpaid tax from some 420,000 low-income pensioners with effect from April 2007.
A shock for the poorest pensioners
If HMRC had approached the pensioners before April 2007 and said that with effect from that date they would be required to pay tax for the first time on these pensions, then that would have come as a shock, but would have been understandable.
Instead of putting resources into tracing these pensioners at the earliest possible opportunity, HMRC decided to proceed slowly and wait for a new PAYE computer system to become operational later in 2008.
LITRG would be happy with that decision if it was accompanied with an undertaking not to pursue the pensioners for past liabilities.
A debt back to April 2007
But HMRC proposes to contact these pensioners, probably some time between August 2008 and February 2009, and tell them that their tax bill is going to rise from that point. Not only that, they will tell the pensioners that they owe tax back to April 2007.
Many of these pensioners may be on means-tested benefits (pension credit, housing benefit and council tax benefit) and will have to make claims and reports to other government agencies. Indeed, in some cases, other government departments may refund the pensioner.
Other examples of debt write-off
HMRC indicates that it has received legal advice (which it is not prepared to disclose) saying that it cannot write off this debt for pensioners, even though the debt arose entirely through errors by HMRC and pension payers.
Contrast this approach with the position on tax credits. Here the PAC in its report shows that HMRC has already written off £700 million and does not expect to collect a further £1.6 billion.
The debts for pensioners may be around £200 to £300 per person per year. This is small in HMRC terms, but not for the lowest income pensioners. Such people operate on a fixed budget and may be pushed into debt for the first time in their lives.
Contact Name: John Andrews (Tel: 0844 579 6700 Fax 0844 579 6701)
Relevant Link: PAC Report