We examined the detail of this problem back in February 2008 following consideration by the Public Accounts Committee, which, in turn, had taken evidence from ourselves.
Not deducting tax from pensions
In brief, for many years, HMRC authorised pension payers to ignore the law (PAYE regulations) by instructing them not to deduct tax from small pensions. Around the year 2004 HMRC decided it could not continue with this incorrect, but administratively convenient, practice. But it seems that they decided they did not, at that time, have the manpower to identify and notify the pensioners concerned.
Not wishing to put the pension payers (or themselves) to more trouble they decided to wait until HMRC computer systems were up to the job of automatically identifying the tax owing.
This method may have been convenient to them but it meant low income pensioners would be put into debt without their knowledge in the meantime.
If HMRC do continue with this plan, thousands of pensioners will be told later this year that they are between one and two years in tax debt. This may be the first time they have been in debt in their lives; and unexpected debt as well.
As we said in February, HMRC were sheltering behind a legal opinion which they refuse to release for challenge.
However, LITRG has subsequently obtained advice from a leading tax and human rights barrister who has told us that, in certain circumstances, HMRC do have discretion not to collect tax that is legally due, and particularly, where to collect it would be so conspicuously unfair as to amount to an abuse of power. This is one of those cases.
As the Public Accounts Committee noted in February, HMRC had already written off £700 million for tax credits recipients and were unlikely to collect a further £1.6 billion. Why might relatively small amounts for low income pensioners be so different?
United front amongst charities
Leading charities, Age Concern, Citizens Advice, Help the Aged and TaxHelp for Older People are all disturbed at the HMRC approach and the perceived unfairness.
We hope that HMRC will reflect upon:
- Our legal opinion which tells them that they can exercise their discretion.
- The government’s desire to reduce pensioner poverty.
- The precedents of tax credit and other past write-offs.
- The costs of collection of thousands of small debts.
- The knock-on cost effects to the Department for Work & Pensions who may have to reimburse the extra tax for those on the lowest incomes.
- The costs to the voluntary sector who will need to support the pensioners.
- The distress and worry that their actions will cause, which could have been avoided had they chosen to deal with the issue in a different way.
Contact: John Andrews (Tel: 0844 579 6700 Fax 0844 579 6701)