As HMRC propose new powers to tackle perceived ‘deliberate wrongdoing’ by tax agents, LITRG again asks them to give more thought to the wider issues of working with various kinds of intermediary other than just tax professionals. 

A recent DWP consultation on housing benefit reform discusses how claimants can be supported as they move off benefit and into work. 

Whilst the objectives are commendable, LITRG urges cross-working with HMRC to ensure that tax and tax credits interactions are fully considered. 

The new tax year is approaching, with 2009/10 drawing to a close on 5 April.  So this month’s reminders article focuses on tidying up last year’s loose ends and looks forward to the year ahead. 

Government plans to move existing incapacity benefit claimants on to employment and support allowance could cause serious reductions in income for thousands of people.

LITRG are concerned that the full tax and tax credits impact of proposed changes have not been fully evaluated.

The influential Public Accounts Committee have called for change in how HMRC deal with the tax affairs of pensioners.

LITRG has been calling for such change for many years; might this now be the time when something is done?

HMRC are tasked with increasing the take-up of tax credits. While many do take them up, HMRC use such misleading marketing messages that they also put off a large number who might qualify.

That number includes some of the more vulnerable customers of HMRC.

The end of the tax year 2009-10 on 5 April also sees the extension of compulsory online filing of end of year returns to nearly all employers. 

Many may be unprepared for this change and not realise that early preparation is needed if they are to meet the deadline and avoid late filing penalties.

Pay As You Earn (PAYE) coding notices are now being issued to pensioners for the 2010/11 tax year.

Whilst it is important every year to check your tax code, HMRC’s introduction of a new system has resulted in unexpected errors so you should take extra care.

In the hard times it is essential that those with the greatest need should claim what they are entitled to.

LITRG has joined forces with a group of charities, led by Citizens Advice, to challenge the Government over £16 billion of unclaimed benefits – including tax credits.

Most people might assume that February is a quieter month in the tax world, after the rush of filing tax returns by the end of January.

But there are a number of things to watch out for.

With forecasts of more snow, some further people may be entitled to receive a “cold weather payment” from the Government.

Are you entitled? And if you are, have you checked to see that you have actually received all the payments to which you are entitled?

It cannot have come as a surprise to HMRC that many people left filing their online Self Assessment return to the last weekend possible. But help for an inexperienced user was not as good as it should have been.

People who found that help lacking, but are subsequently penalised, should consider challenging HMRC.

Increasing numbers of people are taking part time work, sometimes out of choice and sometimes out of necessity. 

Part time employees need to understand the tax and tax credits issues which may confront them. 

Are you repaying a student loan and getting close to full repayment? 

If so, you might be able to use a new direct debit facility to avoid paying too much through PAYE (and then having to wait for a refund). 

From 18 January, tax credits recipients who start to live together, or who become single after being part of a couple, but are late reporting the change to HMRC, can reduce the overpayment on their old claim by whatever they would have been entitled to had they made a new claim promptly.

This is something which we and many of our colleagues in the welfare rights world have been urging the Government to do for a number of years.

As the Government moves forward with plans to extend the system of direct payments, we urge the various Departments and other bodies involved to work together to ensure that tax issues are taken into consideration from the outset.

In 2008, the Government introduced a welcome inheritance tax relief. When a widow or widower (or bereaved civil partner) dies, their estate can benefit not only from their own tax-free band, but also so much of any tax-free band as remained unused when their late spouse or civil partner died.

But quirks in some old rules mean this relief is not available to many where the earlier death occurred before March 1972. We have challenged this anomaly, but to no avail: ministers have  rejected our pleas to reconsider.

The Department for Work & Pensions have announced that many calls made to their major helplines from mobile phones will now be at no cost to the customer.

This is a very welcome and positive move and shows what can be achieved when a major government department is determined to improve customer service; we hope that HMRC will follow.

HMRC’s inability to deal efficiently with telephone callers is putting at risk not only its own reputation, but also the well-being of its low-income customers.

This is the clear conclusion which can be drawn from a report published today by the National Audit Office.

For taxpayers in self assessment, 31 January is a key deadline for filing tax returns and paying what you owe. 

When you pay up this year, make sure you check that you are using HMRC’s correct bank details, as these have changed.  

Many pensioners do not realise that they could be eligible for a free “tax health” check-up from TaxHelp for Older People (TOP).

Around this time of year notices of coding will start to go out from HMRC for the 2010-11 tax year. Some pensioners who have a number of pension sources struggle to understand how different coding notices relate to each other. It may be time to give TOP a ring (and if you speak to Paddy Millard congratulate him on his MBE).

For some years January has been billed as the month for tax action, but there are other things to think about too, particularly if you are receiving tax credits or benefits.

We have set out below some reminders to help you avoid a range of pitfalls and ensure that you receive what you are due.

Another year is almost over. 

In the UK, the end of the calendar year does not stand out as being of obvious importance for tax and tax credits purposes; but before you dismiss it altogether, read on for some important reminders before the end of this month. 

Despite the economic woes of the country, in his Pre Budget Report the Chancellor today tried his best not to add to the burdens of those on low incomes.

The good news was thin on the ground and the range of new help for people in trouble, although welcome, adds to complexity.

Yesterday the Government set about reducing the debt burden by announcing proposals for better and smarter public services.

This has to be welcomed; but at what cost to the most vulnerable consumers of public services?

One of the most welcome features of the tax credit system is the facility to backdate entitlement by up to three months before the claim has been received by HMRC.

However, many claimants may be missing out because of a failure by HMRC to operate the rules correctly.

A new report from the Public Administration Select Committee calls for all facets of government to say what they mean in a way you can understand.

LITRG is not blameless in this respect, but it matters so much more when HMRC get it wrong.

When ringing HMRC, it is essential to keep a careful note of the date and time of the call, to whom you spoke, and what was said.

Otherwise you may be at a disadvantage if you have to prove that you called HMRC in a later dispute.

The lives of bereaved people could be made a great deal easier if the different government agencies involved when someone dies were to share information and join up the services they offer, a new report from LITRG concludes.

The Government has promised a solution but has yet to deliver in practice.

In an appearance on You Tube the Permanent Secretary for Tax gives a stark warning to those who may be hiding something overseas.

But unhelpfully, HMRC and their website make it very difficult to find any information on overseas issues intelligible to the ordinary taxpayer.

HMRC have been consulting on how they assess and monitor their compliance with the laws on equality and diversity.

LITRG recommends that HMRC should do more to monitor their compliance and make it more relevant to customers and front-line staff.
  

Childcare vouchers have become front page news this week following the Government’s announcement that they plan to abolish tax relief on them.

Tax relief on childcare vouchers may help high earners, but families on low to middle incomes are generally better off claiming tax credits. Yet there is precious little information to help people make the right choice.

November ushers in late autumnal gloom and long dark nights, while dead leaves are driven before the west wind.

What better time to stay indoors and review one’s money affairs, ensuring one is not missing any tax deadlines or losing out on any benefits.

HMRC have brought out proposals to crack down on ‘false self-employment’ in the construction industry.

The people who could be put at a disadvantage by the proposals in the consultative document are not the contractors, nor the exchequer, but the low-paid, unrepresented worker.

A new guide written for the man or woman in the street aimed at enabling them to challenge tax credit overpayments is published today.

LITRG has written the guide to help claimants through the complexities of fighting a tax credits overpayment decision and to enable them to decide how to fight and how to find extra help.

The deadline for filing paper tax returns for 2008-09 is 31 October 2009, otherwise a penalty is chargeable.

But HMRC have said, in view of the postal strike, that paper returns hand-delivered on Monday 2 November 2009 will be accepted, as will returns held up in the post if it can be shown that they were posted before 31 October 2009.

The National Audit Office (NAO) today published a damning report on the performance of HMRC in assessing the 5.6 million older people who pay tax. They estimate that 1.5 million pensioners are overcharged by HMRC.

This is no surprise to LITRG and we have written three reports in the last 12 years identifying all the causes. In that time HMRC have only paid lip service to correcting the fundamental faults in their service strategy.

HMRC have recently consulted on whether their legal powers to require banks and similar institutions to hand over information about their depositors, and their accounts, should be extended.

One of the advantages of doing so, say HMRC, is to ‘allow HMRC to target publicity and support where there is a risk tax has been overpaid’. LITRG is supportive if such powers are used sensibly.

HMRC are committed to increasing the take-up of Working Tax Credit (WTC) by 100,000 people and they have launched a publicity drive to raise awareness of entitlement.

We very much welcome this initiative, so it is disappointing that the chosen method of publicity is likely to exclude many people who ought to be claiming.

October started with welcome increases to both the Individual Savings Account (ISA) limits for anyone aged 50 or more and the National Minimum Wage; but it’s also a time of self assessment deadlines.

To find out more about all these and some tax credit issues read on...

As international students start or continue their courses they can worry a little less about their tax position thanks to LITRG efforts over the last year.

Such students bring significant economic benefits to the UK by way of tuition and other fees.

HMRC are starting a consultation with representative organisations to see whether hours of opening in HMRC Enquiry Centres could be reduced.

Inevitably, that will mean more cuts in help for the vulnerable. It is now time for HMRC to admit they cannot cope with the demands placed upon them and to join with and fund the voluntary sector to do the job for them.

It is vital that disabled people should clearly understand the choices open to them. Enough funding must be provided to ensure adequate information, advice and support.

That is the substance of LITRG’s response to the recent consultation by the Office for Disability Issues (ODI) on giving disabled people more control over the support they need to live their lives in the community (Right to Control).

Over the last few years, unacceptable delays, poorly written responses, wrong explanations and sometimes no reply at all have been common experiences for users of the tax credit dispute process.

We have been at the forefront of calling for change. We therefore welcome HMRC’s decision to set up a new team to deal with correspondence from organisations offering free advice to claimants.

HMRC have today launched a tax evasion internet hotline so that citizens may inform HMRC on the doubtful tax dealings of other citizens.

For some years LITRG have been pressing for a citizen to be able to complain about the services of HMRC by sending a secure e-mail to HMRC. This has been said to be too difficult for HMRC to organise. Is now the time?

Earlier this week the Department for Work & Pensions (DWP) re-launched their online calculator which attempts to cover some twenty-eight benefits to which an individual may be entitled under our complex benefits system.

The fact that the DWP then have to list a long list of exceptions that the calculator cannot cover perhaps says it all about the coherence of that system.

Under recent changes to the law in England some providers of childcare who were approved for tax credits under the old rules must now meet new registration requirements.

Parents should now check whether their providers are still registered under the new rules. If they continue to claim tax credits on childcare costs paid to unregistered providers, they could be left with large overpayments and possibly even penalties.

When people lose their jobs or have their hours reduced there are tax credit rules which mean that valuable tax credit payments are not withdrawn immediately.

From August this year these rules have been amended to make them apply to more people.

Are you wondering if there are any tax or tax credits issues you should be thinking about?  Maybe you have seen or heard something about tax return deadlines but want to know more?

Look no further!  September’s reminders are given below. 

HMRC are now putting the finishing touches to ‘Your Charter’ – a document intended to ensure that people who have dealings with HMRC know what they are entitled to expect and are aware of their rights and obligations. 

We hope that HMRC in finalising it will take into account a few remaining adjustments.

… to remind you to file on time. 

If you are going to file your self assessment return by post for 2008-09 it has to be filed by 31 October, but if you choose to file online you have until 31 January next year.  Here is a recap of the rules. 

HMRC have sought ideas on how they can work better with ‘tax agents’ to improve the running of the tax system.

Whilst welcoming the principles behind the consultation, LITRG’s response calls for HMRC to better support volunteer advisers and to recognise the many types of agent and representative who help others, both formally or informally.

Although you may well be concentrating at this time of year on holidays and occupying out-of-school offspring, spare a few minutes to read this month’s article reminding you about topical tax, tax credits and other considerations. 

You could even save some money to help fund a well-deserved break!

Yet again this year, HM Revenue & Customs (HMRC) has been targeted by criminals in an online ‘phishing’ scam.

This particular e mail scam tells the recipient they are due a tax repayment and then asks for bank or credit card details so that the non existent refund can be paid out.

HMRC have now published their response to the latest round of consultation on their new Charter. 

Whilst it is still heavily influenced by HMRC’s ‘Vision’, we welcome the fact that many of our representations have been taken on board in the latest version, due for final publication this autumn. 

During the closing stages of the Finance Bill, Parliament is once again debating the implications of withdrawing the general  10% starting rate of income tax, focusing on those who are still losing out.

With the increase in the basic personal allowance this year to £6,475, most of those who lost out last year will be fully compensated by April 2010. But there remain some on incomes between about £7,300 and £8,300 a year who will still not have recouped all the extra tax they paid in 2008-09.

Summer is here at last (whether or not the sun is shining), but unfortunately that doesn’t mean tax and tax credits papers can be left until the return of dark winter evenings. 

July has some key deadlines not to be ignored.  In particular, people in Self Assessment who have to send in a tax return each year might need to think about the tax they have to pay at the end of this month, and tax credits claimants need to make sure they’ve completed their renewals. 

Read our guide below – the latest in a series of monthly reminder articles. 

In the past, pensioners who had to complete a tax return and who wished to cash in a small pension had to wait until after they had filed their return before they could get a refund of any excess tax deducted from the lump sum.

Now, following LITRG representations, HMRC have agreed that pensioners in self-assessment may claim an immediate refund of overpaid tax when cashing in a small pension.

The latest staff survey for HMRC has been quietly published on the HMRC website.

It shows that HMRC now come bottom in more categories than any other government department surveyed.

Following the National Audit Office’s report last autumn about how HMRC handles tax debt, the Public Accounts Committee have now published their report and recommendations for improvement.

LITRG’s fear is that strong criticism of HMRC could lead to tougher treatment of those in tax debt who are struggling to pay. 

Continuing our series of monthly articles, here we set out some things to remember in June.  Fortunately, 21 June is the longest day of the year, giving you plenty of daylight hours to concentrate on sorting out your tax and benefits!

For individuals, June might not be the busiest month in the tax calendar, but there are some things to be thinking about as we approach the summer months. 

The Finance Bill now going through Parliament proposes to withdraw entitlement to UK personal tax allowances from Commonwealth citizens living in some of the poorest countries in the world. This means they may have to pay UK tax for the first time.

Perhaps they need a Joanna Lumley to run their campaign.

Education Maintenance Allowance (EMA) allows poorer families to keep their children in schooling once they reach 16 years of age. It is supposed to reflect the household income of the families in need.

In Scotland it does that; but not in other countries of the UK. It is time to change things, as the recession bites.

LITRG is often critical of HMRC for not taking on board our suggestions.

But sometimes we can report successes.  Here we outline where we have helped influence changes to HMRC’s proposals on modernising and aligning the powers of the former Inland Revenue and Customs and Excise.

Since the start of the year, each month we have been highlighting points for readers to consider. 

Here are some reminders of things to be thinking about this month.

In its latest report, LITRG shows how inconsistent is the tax and benefits treatment of volunteers’ expenses, and makes recommendations for a simple and coherent approach across Government.

Today the Chancellor set out his plans; they made grim reading.

Those on low incomes have the least reserves to weather bad times and although efforts were made to reduce the impact of the continuing recession on the most vulnerable, many will continue to struggle.

The Chancellor is likely to announce the general approach towards a Charter for HMRC in the Budget this Wednesday. We hope that he recognises that the first draft suggested by HMRC is more of an HMRC Charter than a People’s Charter.

If people on the Clapham Omnibus thought about these things, they might prefer the LITRG suggestion below to the HMRC version.

Some families, where a parent or child has a disability, have lost out on tax credit payments because of complex rules and a lack of HMRC explanation and publicity.

Following a review by HMRC, with LITRG and others, the rules have now been much simplified for those claiming tax credits because of disability.

With the 2009/10 tax year beginning on 6 April, now is the time to take stock of what you need to do to start off the new year on the right footing.

So make your resolution to sort out forms and papers – the earlier the better!

It is particularly important in a recession that government agencies, such as Jobcentre Plus, HMRC, Directgov and the Cabinet Office, join up to provide accurate and helpful information.

However, recent publications and guidance under a new Real help now banner are disappointing.

A recent consultation document from the Department for Children, Schools and Families (DCSF) outlines the Government’s four key aspirations to end child poverty by 2020 and the steps needed to achieve them.

LITRG’s response acknowledges the Government’s progress, but we remain concerned that insufficient attention is paid to various interactions in the tax, tax credit and benefit systems which create disincentives to work.

HMRC are proposing to bring Inheritance Tax record-keeping requirements and time limits for claims and assessments into line with other taxes.

LITRG has expressed reservations about this strategy, given that gathering information for Inheritance Tax returns is a difficult task often performed by friends or relatives of the deceased without help.

Some pensioners are to receive letters any day now telling them that small pensions which they have received for a number of years have not been taxed properly and that this will be corrected from this April.

Although this will be unwelcome news for those who receive such a letter, it is actually very good news that there will be no attempt to tax the past.

Spring is traditionally a time for cleaning in readiness for the brighter days to come.  It is also a time to consider things you might need to do before the new tax year begins on 6 April.

This article therefore identifies some tax and tax credits issues which might need tidying up.

HMRC has been issuing a new style of ‘final demand’ for self assessment liabilities unpaid at 31 January 2009.

Unfortunately much of the wording of these statements is likely to frighten taxpayers into paying up – some of whom might not even owe the amount ‘demanded’.

As the recession deepens, we grow more and more concerned at the incorrect advice that abounds on the subject of childcare vouchers provided by employers, particularly from the one body that many regard as authoritative – HMRC.

The truth is that childcare vouchers can be a good thing, though probably not  for the majority of basic rate taxpayers. Particularly in a recession, having vouchers rather than salary may produce unforeseen consequences.

From 6 April 2009, the Government intends to change business tax relief for the cost of buying or leasing a car. 

Our response to the consultation highlights some concerns, in particular the proposed delay in reintroducing relief on hire cars for disabled people.

HMRC have published their suggested Charter. It tries to express in 227 words the relationship that HMRC expect to have with those who have to deal with them.

It is only a consultation still; but it shows the way that HMRC are thinking. We have some concerns about this thought process.

Many mistakes are made in completing tax credit claim forms so guidance needs to be clear and unambiguous. To help improve standards of claim completion HMRC are changing the style of their claim form notes as from 6 April 2009.

This is a welcome development.

For two years, HMRC have been consulting on modernising their powers on debt collection, investigations, compliance, and charging penalties and interest.

In the latest round of consultation, LITRG is pleased to note that some of our recommendations have been taken on board, but we continue to press for adequate safeguards and suitable provision for unrepresented, low-income taxpayers. 

HMRC have recently published a Purpose, Vision and Way (PVW) that sets out their aspirations.

In this article we ask whether the new PVW offers to HMRC’s low-income customers a promise of a better service than the Mission Statement issued by the Inland Revenue fifteen years ago.

Most people might assume that February is a quieter month in the tax world, after the rush of filing tax returns by the end of January. 

But there are a number of things to watch out for.

Millions of people in the UK are at risk of being left behind in a world where technology is constantly moving forward, according to recent reports from the Department for Communities and Local Government (DCLG).

Action must be taken now to ensure that the so-called ‘digitally excluded’ are not disadvantaged as a result.

HMRC are now taking up to three weeks to process new tax credit claims and up to four weeks to process changes of circumstances which claimants ring to report.

These new delays not only leave low-income families without vital money. They also have important consequences for overpayments.

In running the tax system HMRC exercise certain general management powers (‘collection and management’) alongside the strict law.  This enables them to grant concessionary treatment in some cases where applying the law strictly would have an unduly harsh or unfair result.

HMRC have now announced that some of these concessions will be formalised in legislation.

For some years January has been billed as the month for tax action, but there are other things to think about too, particularly if you are receiving tax credits or benefits.

We have set out below some reminders to help you avoid a range of pitfalls and ensure that you receive what you are due.

A couple of months ago we forecast that the long-running saga of small pensions being untaxed by HMRC was coming to a close.

HMRC were on the point of issuing letters to relevant pensioners, when “administrative difficulties” seemed to have overtaken them. LITRG is now asking for assurances that no attempt will be made to collect tax due on these small pensions for 2008-09 and that the right tax codes will be in place for 2009-10.

Although inevitably a much smaller economy than the UK's, New Zealand faces many of the same tax problems.  Its ways of solving problems of tax administration have often been innovative and influential on UK thinking. 

A recent 'State of the Nation' paper gives further food for thought.

Pensioners may remember that the Chancellor promised in the Pre-Budget Report to give them an extra £60 as a Christmas bonus.

Christmas is not far off so when am I going to get it?

We acknowledged that this year’s Pre-Budget Report had some good news for those on low-incomes. 

But tucked away in the detail is a proposal which will affect the poorer pensioner in a way that we do not like at all.

For the last week or so HMRC have been running a campaign to remind people who are not taxpayers that they should register with their bank/building society to get their interest paid without tax deduction.

Although we would have preferred HMRC to have helped in other ways, the campaign has elicited a new Revenue pragmatism and this is to be welcomed.

The 31 October deadline for paper filing of tax returns has passed. Those who have not registered for online filing and not yet submitted their tax return will have begun to receive letters from HMRC explaining that they should now file their returns online.

However there may be other options or help at hand.

The Department of Health (DH) proposes to give local authorities the power to extend direct payments to those who lack the capacity to consent to their receipt.

In responding to this consultation, LITRG has again highlighted the need for HMRC, DH and the local authorities to consider how the recipients of the direct payments will comply with the statutory obligations, particularly payroll, that go with employing a carer.

In the most complex Pre-Budget report so far, the Chancellor has concentrated many of his proposals on those in the UK who are amongst the most disadvantaged.

This approach is welcome; whether his measures will have the effects he anticipates is yet to be seen.

LITRG generally welcomes today’s National Audit Office report on HMRC’s management of tax debt. 

Recommendations are offered which, if properly implemented, could improve tax debt collection processes for those on low incomes. 

When people are in difficulty through job losses, reductions in hours and other stresses in the wake of the recession, tax and tax credit debt can be unwelcome extra burdens. 

Therefore, in the run-up to the pre-Budget Report, the Low Incomes Tax Reform Group (LITRG) calls on the Chancellor, the Government and HMRC to ease the load on those with low incomes.

As the tax appeals system is changing from April 2009, new rules and procedures are being devised.

LITRG feel there is some way to go in terms of arriving at a structure which adequately caters for unrepresented, low-income appellants.

Care workers have one of the most demanding jobs in the country. They are not well paid. Often the job involves a lot of travelling. Often the expenses of travelling are challenged by authorities as not being part of the job.

Such challenges are unjust as the care worker has little option but to incur the costs. A new decision gives hope that the challenges will be fewer.

Many people are being affected by the current economic slowdown through job losses, reductions in income and increased living costs. 

Now, more than ever in recent years, it is important you claim all that you are entitled to, and let HMRC know if your circumstances have changed.

Responding to the Department for Work and Pensions’ (DWP) Green Paper No-one written off: reforming welfare to reward responsibility, LITRG fully supports the Government’s wish to alleviate poverty and help more people into work.

But the Paper does not focus enough on the impact of its proposals across the whole of Government.

Taxpayers who have to submit PAYE, corporation tax or VAT returns will soon be required to file online, making HMRC the first government agency to compel ordinary citizens to use IT in meeting their compliance obligations.

In response to an HMRC policy document, LITRG has called for paper filing to continue to be available to small employers, particularly those with limited IT capability or certain types of disability.

Many partnerships who do not have agents to represent them could get caught out by the new filing deadlines, and suffer a penalty charge.

HMRC have been driving the online filing push with Moira Stuart reminding people to file paper returns by 31 October. Really HMRC want you to file online, but they forget to tell you that their software does not support online filing for partnerships.

We return once more to our perennial health warning about tax free childcare vouchers provided by employers.  If employees are receiving tax credits of more than £545 a year, they can lose money by accepting these vouchers.

We still see far too many incorrect statements on government and other websites; and still HMRC do not accept that it is something on which they should take the lead.

Over many months LITRG has been leading a consortium of charities in an effort to minimise the problems for low income pensioners who may not have paid enough tax in the past due to an HMRC error.

In the next week or so pensioners affected by this error will be receiving letters from HMRC telling them what is going to happen.

… that is the (fundamental) question that we feel should have been asked in a recent consultation. 

Instead, HM Treasury and HMRC are targeting specific ‘tax avoidance’ tactics used by a few and, in so doing, risk adversely affecting a wider range of employees who are legitimately entitled to claim travelling expenses against tax.

The Government are now eager to improve the tax credits system. Yet HMRC are in denial about the extent of the delays in dealing with overpayment disputes and appeals.

One welfare rights adviser sent nine overpayment disputes, one appeal and one backdating request to HMRC between February and June 2008. As of the start of last week, only two had been acknowledged as received, and only one had elicited any substantive reply.

The Prime Minister in his Party Conference speech referred to a forthcoming initiative whereby one million families will be helped to connect to broadband and get other computer support.

LITRG welcomes the initiative but we have reservations if it is decided to link eligibility to tax credit entitlement.

The tax credit system has attracted heavy criticism since its inception in 2003.

Whilst it has achieved many more things than its predecessors, LITRG believes that much more should be done to enable the system to reach its full potential.

In any new regime of interest and penalties, the key principle is that late payment may lead to an interest charge and late filing may result in a penalty, but in general there should be no overlap.

That is the main thrust of LITRG’s response to HMRC’s latest proposals for changes to the penalty and interest regimes for late filing of returns and late payment of tax.

In June, HMRC began consulting on developing a new Charter to replace the old ‘taxpayers’ charters’ formerly published by the Inland Revenue and Customs and Excise prior to their merger.

Our response looks at how a properly developed, maintained and enforced Charter could improve the experience of HMRC’s low-income ‘customers’.

If you thought qualifying for tax credits was complex, then just try and work out whether you qualify for a grant to warm your home.

Each country of the UK has a different scheme and they all equally struggle to explain whether you qualify.

A more aggressive stance by HMRC is leading to more tax credit debt being pursued in the courts. The courts sometimes may not realise that tax credit debt should be treated differently to ordinary tax debt.

The production by HMRC of a certificate of debt is not conclusive that a tax credit debt is due and unpaid, and the tax credit claimant may be able to use that to their advantage.

On 13 May 2008, the Chancellor announced (see our earlier article) that to compensate for the removal of the 10% tax band  he would increase the basic personal allowance and generate a rebate for most basic rate taxpayers.

Most taxpayers will see this rebate in their pay packets from this month; but because of the workings of the tax system some will have to wait for it.

Earlier this year LITRG led a consortium of charities in convincing HMRC to use its discretionary powers to waive tax debts on certain small pensions. These debts arose prior to April 2008 and we said that we would keep track of HMRC progress in relation to the current tax year, where the tax has still to be collected.

We have continued to meet with HMRC and are pleased to report that they are taking all reasonable steps to make this difficult task as painless for pensioners as possible.

In May, LITRG expressed concerns over whether everyone entitled to Child Trust Fund payments was receiving them.

The Government Minister responsible has now confirmed the numbers of children that were losing out and the changes that will be made.

From April 2009, when taxpayers find themselves in dispute with HMRC, they will be able to ask HMRC to carry out an “internal review” of their case as a simpler and less costly alternative to appealing to the Tribunal.

But LITRG have warned that HMRC’s published ideas for the review are too complex and the process itself lacks the independence of an appeal directly to the Tribunal.

July 31st is an important date in the tax credit calendar. Most tax credit claimants should have completed the renewals process by then.

Failure to meet the deadline can cause untold problems and can generate significant overpayments which later have to be clawed back.

The government propose to make most lone parents seek work from November 2008 if their youngest child is aged at least 12.

There are short-term incentives designed to ensure that lone parents will be better off in work. But will lone parent advisers be able to explain all the benefit, tax and NIC consequences of accepting a job offer? And will lone parents still be better off once the short-term incentives have passed?

A Parliamentary committee and several mental health organisations have called for a review of archaic legislation that uses discriminatory words such as ‘lunatic’ or ‘idiot’.

Since 2003 LITRG has been campaigning for changes to parts of the UK tax legislation where those very words are still used – so far without success.

The Scottish Government have recently sought views on the possible replacement of council tax by a local income tax.

Drawing from our previous research we have indicated that we have significant concerns for those on low incomes and other vulnerable groups.

HMRC are spending £2.7 billion between 2006-07 and 2010-11 to become a more efficient, customer-focused organisation.

The National Audit Office (NAO) have just published their assessment of progress; it does not make good reading if you are on a low income and expecting improvement any time soon.

Widows whose husbands died before April 1975 are discriminated against by new rules for inheritance tax.

The Government have turned down a LITRG amendment which would have solved the problem.

HMRC announced yesterday that the introduction of the new PAYE Service, due to come into operation this October, has been deferred.

We recognise that IT systems must be robust before they are launched. Nevertheless, this is a blow for low income people as the new PAYE Service promised far greater accuracy in their tax affairs.

HM Revenue and Customs (HMRC) are once again criticised for the levels of estimated fraud and error in tax credit claims.

But we still do not know enough about how much is down to claimant error rather than claimant fraud, and we suspect that HMRC error is more prevalent than they claim.

Education maintenance allowance (EMA) is an allowance for young people to encourage them to remain in education. However the qualification rules are dependent upon a household’s income as measured for tax credits purposes.

If people do not understand tax credits they may well be confused about their entitlement to EMA. Government sources should do more.

In 2010 a new government initiative is due to come on stream to encourage those on low incomes to save. The Savings Gateway will provide a cash savings account for regular savings. If you save, then the government will add to your contributions.

LITRG welcomes such an initiative in principle, but we do have concerns about how the processes  will work, especially as much reliance is to be placed upon the databases of HM Revenue & Customs (HMRC) and the Department for Work & Pensions (DWP).  The scheme looks to be complex to administer.

The filing rules for Self Assessment change this year; not everyone who needs to know, does so.

This was brought home to us by a recent newspaper article quoting last year’s regime. This short article looks at features of the new tax return and reminds you of the new rules and deadlines. 

Even after the raising of personal allowances announced on 13 May 2008, there are still some 1.1 million households on low incomes yet to be compensated for the withdrawal of the 10% starting rate.

An MPs’ report recommends that the remaining losers be identified and compensated. For the longer term, Budget decisions should be taken not in isolation, but having regard to broader Government objectives.

When the records of millions of child benefit records went missing the morale of HMRC hit rock bottom, as did the trust of many HMRC customers.

The Poynter review published yesterday marks out a new strategic approach to HMRC data which should be welcomed by people on low incomes provided, and it is a big proviso, that the needs of the most vulnerable “customers” of HMRC are appropriately recognised.

LITRG has tried hard to defer the changes the Government propose to the way in which low-income migrant workers and students are taxed in this country. But last week, at the committee scrutinising the Finance Bill, the Government rejected any change.

If you are a foreign student or worker you are now reliant on guidance from the Revenue to work out your tax obligations. A Government Minister has promised that the Revenue will provide “simple, non-technical explanations of the concepts and rules”.

The Government’s Office for Disability Issues (ODI) has held a consultation on development of the Independent Living Strategy – the initiative to help more vulnerable and disabled people to live independently within the community.

Following on from our report Independent living, direct payments and the tax system published earlier this year, we have once again emphasised the importance of joined-up government. 

Together with the National Youth Agency , we recently conducted a survey asking what young people would like to know about the tax system.

The results have now been collated.

HMRC has held a consultation on Improving the collection of National Insurance Contributions for the self-employed, which closed on 6 June 2008.

In our response, LITRG have asked whether HMRC have really done enough ground work to assess the needs of their customer base – particularly those on low incomes – before proposing detailed changes. 

Almost since its very beginning, the Child Support Agency (CSA) has been criticised for failing to achieve its primary aim – to ensure that children are provided for by their parents. 

The legislation for a new system of child support has just completed its journey through Parliament. This new system is very dependent upon data from HMRC, but will that data be good enough?

If you want to cash in a small pension, or several small pensions of up to £17,500 in value during the tax year to 5 April 2010, you may find that too much tax is taken off the lump sum you get.

This article will explain how this happens, and what you need to do in order to reclaim the excess tax.

One proposal lurking in the depths of the 2008 Finance Bill is to reduce the current ‘6 year’ time limit for tax refunds to just 4 years. 

If you have been careless with your tax affairs, HMRC can go after you for 6 years of back tax. But HMRC now want to reduce their obligations to you down to 4 years, even where the repayments are due to HMRC errors. Where is the fairness?

What if one day you receive a brown envelope in the post and inside is a letter from HM Revenue & Customs telling you that they are making some enquiries into your tax return or tax credit claim?

How will you feel? Worried, confused, irritated or perhaps, even angry? But what should you do?

In February, HMRC announced a consultation on changes to the way in which students’ tax is collected under Pay As You Earn (PAYE).

LITRG’s response builds on our earlier report, which recommended special arrangements for students.

The Child Trust Fund (CTF) is one of those government initiatives which seem like a good idea, but which is bedevilled by detailed provisions. This means that, in reality, the individual recipient has little chance of understanding whether they are receiving that to which they are entitled.

LITRG expressed this concern in evidence given to a recent Treasury Committee enquiry into the Child Trust Fund. Now new evidence of significant errors makes us even more worried that those on low incomes have been losing out.

Figures for tax credit overpayments were published today and they showed a fall.

Even more significantly HMRC have published a discussion document looking at possible amendments to the tax credits regime to make it more customer-friendly.

HMRC are still gearing themselves up to collect tax from unsuspecting low income pensioners. The debts arise because of HMRC inefficiencies.

Yet, HMRC seem intent on pressing forward with the collection because they feel it would be unfair on other taxpayers not to do so.

The Commission of the European Union has sought views on what type of goods and services should qualify for a lower rate of VAT, and LITRG has responded. 

Building on our previous research, we commented on the impact of VAT on vulnerable people and how its effect can be softened with reduced rates. 

Not everyone wins overall in the 10% furore, even after the £2.7 billion “compensation” package announced by the Chancellor.

One particular group, those between 60 and 64 , are still likely to lose either because their income is too low, or because the Department for Work and Pensions and HMRC do not co-operate with each other.

Yesterday the Chancellor announced the Government's chosen route to solving the "10% dilemma".

It was not LITRG's preferred option as it does not fully compensate those on the lowest incomes.

The Finance Bill contains proposals which threaten to make the life of an overseas student a nightmare and cost HMRC a fortune in trying to explain the impossible.

This is all part of the collateral damage as the government tries to attack the non-domiciles with new tax rules.

Many people lose out because they do not know they can get certain goods and services cheaper if they are 60 or over or have a disability.

VAT (‘Value Added Tax’) is charged at 17.5% on most goods and services but some things have no VAT or it is charged at a reduced rate to people who identify themselves as qualifying for the discount.

HMRC have launched a new part of their website aimed at making contact easier.

So how did they do? We tried to find out on behalf of the various groups we aim to represent.

Two days ago we were full of praise for the new tax credits upgrade of the HMRC website and the new approach it announced of dealing with disputes by telephone.

HMRC now tell us, it wasn’t quite as simple as we had imagined.

Mostly when we post a story about tax credits on our website it is a tale of unmitigated gloom; so when this is not the case we like to tell you too.

HMRC have re-vamped their tax credits website and it is a significant improvement.

The majority of people do not have to complete a self assessment tax return.  This is because employed earnings and pensions are generally taxed under Pay As You Earn (PAYE).    

In the fifth of our series on pensioner problems, we consider why it is that some receive a full self assessment tax return after many years of no contact with HMRC and without an explanation. This can be a very worrying experience for a pensioner.

In the fourth of our series of case studies we examine a case of a taxpayer failing to receive the benefit of the 10% band – worth around £200 a year.  Although this tax band is being abolished for earnings and pension income from 6 April 2008, it will still exist for savings income.

This case also demonstrates the inconsistency in current HMRC practices.  Why should a tax repayment be issued to a customer one year, entirely unprompted, but not for subsequent years? 

The abolition of the 10% starting rate band was intended to simplify the tax system.

But does that claim really bear close scrutiny?

The abolition of the 10% tax band will increase the tax liability for some people under 65 who are not entitled to tax credits. Women pensioners between the ages of 60 and 64 on low incomes are hit particularly badly by the abolition of the 10% band of tax from 6th April 2008.

This is not just because of the increase in tax, but also because of the lack of joined-up systems between HM Revenue & Customs (HMRC) and the Pension Service.

In our report on Direct Payments  published in January we recommended that there should be much better liaison between Government Departments.

As if to illustrate that need, the Department of Health published this month their latest publication “A guide to receiving direct payments from your local council”. 

HMRC is proposing to harmonise and extend its powers. Although LITRG has no fundamental disagreements with the emerging approaches we do have concerns about the detail.

In our response to the latest consultations LITRG has called for taxpayer safeguards to be enshrined in law, not just reflected in internal guidance.

The deadline for submitting tax returns for 2006-07, and for paying the remainder of any tax due for that year, was 31 January 2008.  Since then, HMRC’s systems have been generating £100 fixed penalty notices for tax returns filed late.  For 2006/07 tax which was still unpaid at 28 February, 5% surcharge notices will also be issued. 

These notices are produced automatically and sometimes incorrectly.  So if you have had a penalty notice even though you did send in your return on time, or did pay your tax by 28 February, challenge the penalty! 

HMRC have just completed a consultation on whether employers should operate PAYE on benefits and expenses and whether the benefits rules for those earning less than £8,500 should be changed.

We have raised concerns about the impact of these proposals on some of the most vulnerable members of society. We have also recommended that further research is done before HMRC press ahead.

Most low income taxpayers are outside the self assessment system but increasing numbers are being brought within it, particularly pensioners.

The deadline for filing paper returns will change for returns issued next month; it is to be brought forward to 31 October. 

Alistair Darling, with very little room for manoeuvre, produced an unexciting prospect for those on low incomes in his Budget today.

Nearly all of the changes from April were foreshadowed, but there were some small surprises (and disappointments at what was not) hidden in the small print.

The latest survey of morale within HMRC shows a continuing and worrying trend.

It has been a bad few months for the organisation with the loss of data and a damning report on tax credits from the Ombudsman, but have too many straws been placed upon this camel’s back?

In many parts of the tax system the law and processes are so complex that they defeat the mythical “man on the Clapham omnibus” (and perhaps some of the advisers travelling with him).

Also “your local HMRC man” is becoming equally mythical as HMRC drive their customers to search the web or consult a Helpline. But many people confronted with complexity need to talk it through across a desk. If you have money you can employ a tax adviser. For those that cannot pay, we start to wonder whether ignorance of the law is going to have to become a valid excuse.

A common misconception amongst pensioners is that the state pension is not taxable – after all, why would the Government give money out only to take some of it back?  But the state pension is indeed taxable.

Then again surely HMRC – a Government body – should know how much state pension you are receiving from the  Pension Service – another Government body?  Not necessarily. 

In May 2007, we published a report on the problems experienced by older people in their dealings with HMRC and we continue to monitor the situation.

Over the coming weeks, through a series of case studies, we will be illustrating the common issues that pensioners are encountering only too often in their dealings with HMRC. In conjunction with this we will be pressing for changes to the system to try to alleviate the situation for pensioners currently affected and to prevent similar problems occurring in future.

LITRG is working in partnership with the National Youth Agency (NYA) to update and improve the money sections of their website.

Can you spare a few minutes to help us?

The Public Accounts Committee in its report published today Tax Credits and PAYE reflects concern about low-income pensioners who are currently being put in debt by HMRC without their knowledge.

It is not too late for HMRC to rethink and to decide that collecting tax only for future periods is the right way forward.

For four years HMRC has been writing off tax credit overpayments due to official error, but only where claimants could reasonably have thought their award was right. But HMRC’s notion of what may reasonably be expected of claimants has been widely criticised for its harshness and unfairness.

Therefore, in the latest version of the code of practice on overpayment recovery published yesterday, HMRC replaces the ‘reasonableness test’. We welcome this, but its replacement is still likely to create difficulties for claimants.

Government tax rules are hindering good government intentions to help vulnerable and disabled people live independently within the community.

A new report from the Low Incomes Tax Reform Group finds that more help and joined-up government are needed if the move towards direct payments and individual budgets is to be effective as it could be.

HMRC has recently announced how it will comply with regulations under the Disability Discrimination Act 1995 about IT accessibility.

It seems clear that HMRC propose to do so without major involvement of disabled users which would be a mistake.

HMRC is about to go back on a promise it made to some 180,000 low-income pensioners in July 2007 that it would repay tax for up to 6 years where HMRC had failed to match data held on their computers.

But HMRC has not yet got around to identifying those pensioners, and since the repayment deadline for the first of those six years (2001/02) passes on 31 January, the pensioners will lose the chance to claim back overpaid tax for that year.

The government is planning to make people from overseas pay more tax in the UK.

The problem with the government’s present approach is that, whilst their target may be the wealthy, hundreds of thousands of people with ordinary jobs, including many poor people will get caught up in the chase after the rich.

While many interactions between different benefits and tax credits have positive or coherent policy effects, a substantial number are contradictory, with the granting of one benefit leading to the withdrawal, or curtailment, of another. 

Such interactions can make claimants worse off by entering work, or working longer hours.

As part of the reform of the tax tribunals scheduled for April 2009, HMRC has proposed an ‘internal review’ procedure to run concurrently with, or as an alternative to, an appeal.

LITRG’s response to this proposal is one of qualified support. However, there must be adequate safeguards for the unrepresented, and the appellant must have the right to activate their appeal at all times throughout the process.

The TUC is  pressing for an increase in the national minimum wage and also for the adult rate to be adopted from age 18 rather than 22 as now.

As always, taxation should be factored into the debate; but as often happens it is not explicitly taken into account.

LITRG has had enquiries from people over 50 who are receiving carer’s allowance, asking whether they are entitled to the 50 element of working tax credit (WTC) on going back to work.

Our analysis says they can; HMRC disagrees.

'When I use a word, it means just what I choose it to mean - neither more nor less' said Humpty Dumpty.  This is a useful quote to remember, especially when reading press releases from the Department for Work & Pensions (DWP).

The DWP announced earlier this week that from next year it proposes that those aged 60 and over will only get 3 months’ backdating of benefits rather than 12 as of now. This was claimed to be 'less intrusive' for pensioners.

Our recent survey showing poor performance by banks and HMRC regarding tax over-deducted from bank interest has been followed by HMRC publishing an update of its leaflet on the subject.

It is late; it is incomplete; it is unhelpful to those with disabilities; it lacks customer focus and merely confirms how badly HMRC serves its low income customers.

It is not uncommon for HMRC to lose letters and claims from their customers. When the Tax Credit Office loses tax credit claims it is the customer that is forced to claim again. This can mean a significant loss of tax credits.

But HMRC’s own guidance says that claimants should receive one-off system payments when they can produce evidence of a lost claim.

Some take the view (including some parliamentarians) that the introduction of ‘playback’ on tax credit annual renewal forms solves the question for claimants of ‘why did this overpayment occur’.

Playback does help sometimes; but HMRC are far from giving claimants what they need.

Investors who made a panic withdrawal from their Northern Rock Individual Savings Accounts (ISAs) are to receive special consideration.

But what does this mean for investors in future and will this create a precedent?

Over many years LITRG has conducted small surveys of how banks provide help to their low-income pensioner population. Every time we have done that we have been disappointed by what we have found.

Those pensioners who are not taxpayers need help from their bank to prevent tax being deducted from interest on savings accounts. Our latest survey once again demonstrates that the banks are generally failing to provide appropriate and up-to-date information.

Today the HMRC Chairman is due to face the Public Accounts Committee to discuss progress in collecting the £3.9 billion of tax credit overpayments which were outstanding at 5 April 2007.

LITRG wishes that as least as much attention were spent on understanding why such overpayments arise and how unfair it is to expect low-income families to repay some of this debt.

Alastair Darling was cautious in his first Pre-Budget address, and failed to redress the blow to low-income taxpayers delivered by his predecessor.

Tax liabilities for those on very low incomes will rise next April because of the abolition of the 10% starting rate on earnings and pensions. That increase will be partly offset by rises in the personal tax allowances for people over the age of 65, and in tax credits. However, if you are on a low income, but neither a pensioner aged 65 and over nor a tax credit claimant, you will probably be worse off.

Apart from some above-inflation rises in the tax credit rates and thresholds, the future shape of tax credits will remain much as it is now; an opportunity has been lost to put right some of the worst problems that we see on a day to day basis and which the Ombudsman highlights in her Annual Report published today.

John Andrews OBE, Chairman of the Low Incomes Tax Reform Group, said:

‘The Chancellor said today that the route out of poverty was through work. Yet the tax changes announced by his predecessor will reduce work incentives for the lowest paid.

‘Only those workers who can claim working tax credit, and who are prepared to subject themselves to the roller coaster that characterises the tax credits system, will gain – and approximately one-third of those will face an overpayment along the way.’

The Treasury published a consultation in June this year looking for ways to improve the Gift Aid system and so increase charitable giving across the UK.

In its response, LITRG examined how Gift Aid could be altered to include non-taxpayers so ensuring that all citizens are recognised as making a contribution.

LITRG has responded to HMRC proposals to change how customers pay tax and its processes for tackling late payments. 

In our submission, we welcome some of HMRC’s suggestions to increase payment flexibility.  However, we caution against increasing automation of tax collection without sufficient safeguards.

Tax credit overpayments cause much heartache to hundreds of thousands of people on low incomes, yet four years after the introduction of the tax credit system they are still little understood by claimants, professional advisers and HMRC alike.

LITRG has written two articles in an attempt to shed a little light on the subject.

One in three people who are entitled to it do not claim council tax benefit (CTB) and the Communities and Local Government Select Committee has called for major reforms.

The LITRG call  for a rethink  was endorsed by the Committee’s report

LITRG has submitted its response to the latest consultation by HMRC on what powers they should take and what safeguards taxpayers and tax credit claimants should be given. We are concerned that HMRC, in its desire to rationalise its processes for business, will once again forget the need to give appropriate help to the most vulnerable of its customers.

It may not be widely known that 2007 has been designated ‘European Year of Equal Opportunities for All’. At the same time there are significant changes afoot in the UK, with the establishment of the Commission for Equality and Human Rights (CEHR). 

Over the years LITRG has drawn to the attention of HMRC and other government departments examples of discrimination against minorities with special needs. CEHR may need to be proactive if it is to prevent large government departments from carrying on as they always have.

Last month the Treasury Committee published a report on how well HMRC have cut back their resources following merger whilst maintaining the level of service provision.

Significant progress is being made on staff reductions but much remains to be done to provide an acceptable customer service

The new Financial Secretary to the Treasury (Jane Kennedy) got off to a difficult start last week by announcing further problems identified with the tax credits system in the years 2003-04 to 2005-06.

However it appears as if HMRC are going to take these mistakes on the chin and not seek recovery from claimants.

The occasions when the taxpayer or tax credit claimant is required to contact HMRC are rising every day, and with fewer and fewer opportunities to pop in to your local Revenue office it means that the phone call is an unavoidable cost.

A report from the Social Security Advisory Committee (SSAC) supports LITRG’s appeal for a much fairer deal for the HMRC customer.

Every spring most householders receive a council tax demand – invariably higher than last year’s.  The amount to be paid depends on the value of the property, not the income of the householders, and many people struggle to pay. 

But the consequences of getting behind with the payments can be very unpleasant.

Pensioners on low incomes do not receive the help from HM Revenue & Customs that they deserve and as a consequence too many mistakes are made which mean that they pay too much tax.

A new, comprehensive, report from the Low Incomes Tax Reform Group sets out a range of improvements which the incoming Prime Minister would be well advised to embrace.

For years HMRC and its predecessor organisations have admitted that they really ought to do better at handling the complaints of its customers.

So it is doubly disappointing that the new HMRC have not yet been able to build upon even their own best practice as they introduce a new approach to complaints.

Pensioners who have deferred their State Pension in order to receive a lump sum will have some serious thinking to do after the tax changes announced in the Budget.

It was thought that pensioners of 65 or over could not be worse off than in the current tax year by the Chancellor raising allowances from April 2008 whilst removing the 10% lower rate tax band. This is not so.

In an unprecedented move HMRC has announced a deal for people who have offshore bank accounts and who may not have disclosed everything that they ought to the tax authorities.

Rather less publicity has been given to a parallel deal for anybody with something to confess to the tax authorities not connected to offshore accounts (the “onshore deal”).

In November 2006 the rules about what changes of circumstances you must report to the Tax Credit Office changed.

From 6th April 2007 the time limit for reporting these changes has reduced from 3 months to 1 month.

The Treasury Sub-Committee of the House of Commons will examine the Rt Hon Dawn Primarolo, Paymaster General, and HMRC officials on 14 March at 2.30pm, in a follow-up session on the administration of tax credits.

The Sub-Committee has called for written submissions in preparation for that session. In response, LITRG has submitted two pieces of written evidence.

The rules on what you must tell the Tax Credit Office, and when you have to tell them, are changing. Now, more than ever before, it is vital that you:

• keep in close contact with the Tax Credit Office whenever your income goes up or down, or your personal circumstances change; and
• keep a careful note of when you rang the Tax Credit Office (date and time of day), whom you spoke to, what you told them, and what they said to you.

Sometimes the strain of being an angry campaigner gets to even the most seasoned veteran of the Low Incomes Tax Reform Group.

To let off steam they write to their tax colleagues just to check whether they might sometimes expect too much from HMRC.

The collection of tax on retirement annuities is being switched to Pay As You Earn from April 2007. Properly handled, this would have made life simpler for pensioners on low incomes. However due to a lack of efficient systems within HMRC, what should have been a seamless transition is beginning to look like a shambles.

We call upon HMRC to compensate pensioners who are continuing to overpay tax through incorrect application of PAYE codes.

Citizens Advice have been taking Government to task for the way in which council tax arrears are enforced among debtors on low incomes and on benefits.

In recent comments to Government about proposed reforms to council tax enforcement, Citizens Advice uses case studies to show how people who are already in serious financial difficulties, brought about through changes in their circumstances rather than through mismanagement, are unjustly treated by the current legislation and procedures. The proposed reforms miss an opportunity to put that right, they say.

Tax credit claimants and their advisers are consistently told that telephone calls to the tax credits helpline are recorded. But since 4 October 2006, letters from another part of HMRC, the Data Protection Unit, have displayed the message ‘Please bear in mind that not all telephone calls to the Tax Credit helpline are recorded’.

LITRG are calling upon HMRC to give claimants the benefit of the doubt in any dispute which turns on the making of a call to the helpline.

For years pensioners with certain types of pensions (annuities) have had too much tax deducted from their payments. Often those pensioners have not known that they have been overcharged, or how to recover the overpaid tax.

Now, to add to their pain, HMRC are refusing to repay overpaid tax that is more than six years old, despite the Department’s own delay in telling the pensioners that they have been overcharged.

In a new Report, the Low Incomes Tax Reform Group (LITRG) considers how to reform the system of tax appeals to the best advantage of unrepresented taxpayers with limited means to pursue an appeal.  This group is likely to form the majority of appellants before the tax tribunals.

HMRC are still silent about whether they are going to review again the tax credit cases where they made errors and then refused to write off the overpayments that these errors caused.

LITRG proposed a review of these cases and back in June the influential Treasury Select Committee agreed that this should be done.

For eighteen months LITRG has been calling for HMRC to explain why childcare vouchers are unlikely to be a help for those on low or modest incomes.

HMRC’s latest guidance explains many of the pitfalls. But there remain other ways in which HMRC could help people struggling to understand the interactions between different types of childcare support.

A recent research report from the Department of Work and Pensions shows that the horror stories of tax credit overpayments is putting off some pensioners from claiming State Pension Credit. 

But in reality claiming the Pension Credit is nowhere near as beset with difficulty as claiming Tax Credits.

Robin Williamson, the Low Incomes Tax Reform Group’s Technical Director, considers the report of the Treasury Sub-Committee on the administration of tax credits

This article was originally published in Tax Journal on 24 July 2006 and it is reprinted here with the publisher's kind permission.

Starting this month (July) HMRC are trying out  new methods of approaching taxpayers who HMRC think might not be doing everything right in relation to their tax affairs.

In explaining their prospective approach in a consultation document HMRC have used comforting words like “coaching” and allowing HMRC to “advise business on any changes required to their procedures”.

Should taxpayers co-operate? The answer is, it is too early to say.

Even after intense lobbying by a group including several mental health charities, and a debate in the House of Commons, the Government’s proposals on the taxation of trusts still pose a serious threat to many disabled people who rely on trusts to manage their financial affairs.

The forthcoming debate on the Finance Bill in early July will probably be the last opportunity for many years to remove this threat, and we urge the Government not to miss it.

We have highlighted on this website before how difficult it can be to get through to HMRC on one of their Helplines, particularly for tax credits.

Many people who have advised us of their problems have explained how many times they have had to telephone HMRC and then wait…..and wait.

But how much is this costing you and are HMRC telling you the full story about that cost?

Few will have missed the negative press coverage of the Government’s proposals in this year’s Budget to tighten up the inheritance tax rules on trusts (see our article Trusts are not just for the super-rich).

LITRG now has one overriding concern. That is – how will the new rules affect trusts for disabled people? That worry is shared by charities in the field, particularly those concerned with mental health.

For years and years the Cabinet Office has promoted the idea that joined-up government is working. But a quick browse of the LITRG website will show that lack of joined-up government makes life extremely complex for those on low incomes.

The latest example to demonstrate how far we have to go to achieve that goal has just been produced by the Department of Health (DOH).

A year ago we identified the possible downsides of taking childcare vouchers from your employer if you were on a low or modest income. We also criticised the lack of HMRC guidance.

A year on, the traps are even worse and the HMRC guidance remains inadequate. We are concerned that this could be developing into a mis-selling scandal.

Very often it is the things which are not said during a Budget speech which give the greatest cause for concern. These can sometimes be seen more clearly after a day or so of reflection.

We worry that the continuing complexity of the tax and welfare systems, coupled with inadequate resources and a low priority given to those on low incomes will mean a continuing deterioration in service.

Two years ago Government Ministers undertook to take steps to try and ensure that pensioners who were overpaying tax would be helped by the tax authorities.

It now seems that for some these steps will be too late and once again pensioners will lose out.

LITRG has strongly criticised HMRC's practice on collecting tax credit overpayments that are due to official error. Giving evidence to an influential body of MPs, LITRG said that the so-called 'reasonableness test' took no account of claimants with differing abilities and levels of comprehension.

Also, the process by which some overpayments were written off and not others in recent months was at best unfair, at worst contrary to natural justice.

The above heading is a valid question after our 91 attempts to speak to an HMRC helpline on which we reported two months ago. Not a happy experience.

We decided to follow up this investigation by finding how easy it was to find a telephone number to contact the "tax man" in order to pay him a visit.

In his Pre Budget speech the Chancellor announced a number of measures which will, in time, alleviate some of the harsher edges to the tax credits system, and which, for the last 18 months, we and others have been campaigning.

It is hoped that those who have been caught in the past, or will be caught before it is possible to implement these changes, will now have a "softer touch" applied until the computer systems can be adjusted to cope.

Although the Chancellor signalled changes to tax credit overpayments of some significance, when it came to income tax, national insurance and tax credits generally, it was largely "as you were".

There has been no dramatic attempt to take people on exceedingly low incomes out of the tax net so we have the continuation of the strange scenario of HMRC taking with one hand and either themselves, or the DWP, giving back with the other.

On Monday evening 14 November LITRG featured in BBC1's episode of Real Story with Fiona Bruce. The subject was a claimant whose overpayment nightmare turned out to have been wholly unnecessary: she was actually owed money by HMRC, not the other way around.

We sense that there may be many more claimants whose entitlement has been wrongly calculated, and who are being made to pay back overpayments they cannot afford when all the while they have been underpaid.

The government over the last few years has described the tax credits system as "simple", "responsive", and "targeted". In large parts of the system it is none of those things. Very often it does things which are unexpected and irrational if you are a recipient or potential recipient.

One of those things is the way in which the system calculates income so that it represents, not what the claimant is actually getting at any given point during the tax year, but what their income would be if the total annual figure was spread out evenly day by day throughout the year.

Eighteen months ago we were critical of the Inland Revenue for not publishing their service standards when their codes of practice committed them to do so. Subsequent to our article partial standards were quickly published for 2004/05.

Clearly with the new HMRC it is important to know what the new organisation is to be measured against, after all, we were told one of the reasons for its formation was to improve customer service.

It is one part of HMRC's long-term strategy to direct its customers primarily to the telephone for help or guidance. Contact Centres are the places where people are directed for that telephone assistance.

The problems with the tax credit telephone helpline are now legendary. However increasing numbers of "ordinary taxpayers" have been reporting that they cannot get through to the tax office. We decided to investigate.

A year ago we pointed out in our article on this website Revenue incapable on incapacity benefit  how their information and service for those claiming this benefit was totally inadequate.

We had the impression that "something would be done" but it seems we were mistaken.

Every day more and more people are starting up their own businesses.  Most turn to HMRC for advice about how National Insurance works for the self employed and the Revenue leaflets in this area are, in the main, very helpful.

However if you are reading one of their leaflets about when you need to register for Class 2 NIC and when a penalty can be charged for late registration you will actually be looking at a deadline which is simply expressed, but is not strictly correct.

The discussion paper on Inheritance Tax (IHT) and Pension Simplification sets out how pensions choices will change after 5 April 2006. It then goes on to consider the implications of the current IHT system on the new pension regime and asks for suggestions as to how it should be modified where the existing law is considered impracticable in any respect.

The Government envisaged its tax credits system as a flagship reform of the tax and benefits regime. Yet a series of highly critical reports from welfare rights and parliamentary bodies has shown up the unfitness of the flagship for the waters in which it aspired to sail. Already it has encountered obstacles, some of which are icebergs with the greater part of their mass still invisible below the surface.

Is the flagship susceptible of repair? Or is it structurally unsound and in need of redesign?

One of LITRG's most persistent campaigns is about to come to fruition. Low-income pensioners who receive retirement annuities have for years had too much tax deducted from their retirement annuities. But from April 2007, this will change. Only the tax that they actually owe will be taken off their pension before they receive it.

This follows a seven-year campaign by LITRG to get justice for those who were left behind when pensions were last modernised in 1988.

The Government Minister responsible for tax credits has now rejected the Ombudsman's recommendation that all tax credit overpayments that arose through official error during the first two years of the scheme should be written off.

But people now have a far better chance of getting their overpayments written off under the new 'streamlined procedure' than those whose requests were dealt with in accordance with earlier practice. This raises issues of natural justice.

Two recent cases on tax and human rights show the limitations of the Human Rights Act, enacted in the UK in 1998. The UK courts cannot use that Act to overturn laws properly enacted by Parliament, even if those laws are incompatible with human rights. To do that an applicant has to take his case to the European Court of Human Rights in Strasbourg, which alone can offer 'just satisfaction' for an infringement in the national laws of the UK.

Since April this year it has been possible to defer your state retirement pension, and when you do decide to claim it to take a lump sum in lieu. In order to decide whether to defer or take the pension straight away, you need to consider what effect either course of action will have on your tax liability and entitlement to state benefits.

This article looks at how the lump sum is taxed, and how it and your deferred pension are treated when working out your state benefits.

Recent efforts by the Government to improve the administration of the tax credits system include a 'streamlined procedure' for deciding disputes about whether overpayments should be recovered. Recent figures show that this streamlined procedure may already have benefited claimants.

Employers who provide generous sickness or maternity arrangements can, through no fault of their own, contribute towards tax credit overpayments of their employees.

This is due to rules hidden in the small print of tax credits law and arises most often where generous employers have schemes that continue longer than the state provides.

It’s enough to be persecuted or tortured in your home country without having the forces of bureaucracy descending upon when you have fled for shelter to the UK.

This is what is happening here to some refugees granted asylum when trying to deal with the Revenue and to be paid what they are due.

Whilst the tax credits system is settling down, complaining about its operation has become routine, rather than the exception.

The advantage of a complaint is that if things are not dealt with appropriately at some point in the process, an independent third-party will be able to take a view.

The TOP service is now carried on through the charity, Tax Volunteers, who will use the funds to ensure that low income pensioners in any part of the UK will be able, over time, to access this valuable, expert and independent service.

Yesterday, the PMG, Dawn Primarolo issued an important written statement to the House of Commons and it is reproduced at the end of this article.

It represents the first public acknowledgement that some of the improvements that LITRG and other groups have been highlighting for some time do require immediate attention.

We welcome this announcement and the positive commitment to improve current processes. The PMG and HMRC can count on our full support in helping to bring about these changes.

In our first article on childcare vouchers we indicated that employees who get help with their childcare costs through tax credits should be very careful before taking childcare vouchers from their employers. They could be a lot worse off.

We pointed out that guidance from the Inland Revenue, as the government department responsible for explaining the scheme, was largely inadequate.

We have carried out a review of websites to see how well the disadvantages of vouchers are currently being recognised.

Until now, children have been able to go to their grandparents' home to be looked after while their parents are working; and if the grandparents have applied for approval as child carers, the parents are able to claim help with child care costs through working tax credit.

But a subtle change in the rules for approved carers, now means that, for the parents to continue to get child care support, grandparents who have used this route to become qualifying childminders will in future also have to look after at least one non-related child. There has been negligible publicity surrounding this change.

Employer provided childcare vouchers which are free of tax and national insurance up to £50 per week are to be introduced from 6 April. Employers are being encouraged to provide them for their staff, but many people will be worse off if they take vouchers rather than a cash alternative.

It will be the lower paid and middle income employees that will have to be most careful if they are not to be disadvantaged. LITRG wants everyone taking advantage of this government sponsored initiative to be sure they understand their own position. The Inland Revenue have done little so far to explain the complexities for 'the man in the street'.

A major problem with the way the Revenue administer the tax credits system is how, in deciding whether or not to recover overpayments of tax credit, they act as judge and jury in their own cause. In particular, when an overpayment is due to Revenue error, and the Revenue still insist on recovering it, the claimant can experience a considerable sense of injustice.

The attached article 'Tax Credit Overpayments: How they arise, How they are recovered, and How to challenge them' is designed to help claimants and their advisers to understand the system that produces overpayments, and to negotiate successfully with the Revenue in individual cases. We are planning to produce further articles on overpayments, including one on the Revenue's own instructions to their officers in deciding whether a claimant could reasonably have believed their award to be right.

When pensioners first start to receive the State Retirement Pension (SRP) their tax affairs can go off the rails for the first time in their lives.

Unfortunately, inadequate Inland Revenue or DWP processes and lack of guidance mean that this happens all too often.

The results can be overpayments of tax, underpayments of benefits or unnecessary forms to complete.

Robin Williamson -Technical Director of the Low Incomes Tax Reform Group offers a LITRG view of the Budget 2005.

This article was originally published in Tax Journal on 04 April 2005 and it is reprinted here with the publishers kind permission.

Tax becomes payable on an income of around £91 per week if you are under 65 years of age.

Various means-tested benefits administered by the Department for Work and Pensions (DWP) apply at those levels of income. In broad terms the DWP should only assess someone's means after any tax they have paid on related income has been taken into account.

It seems common sense that this should be so, but the DWP have been fighting to show the opposite. After a recent Court case (and a long battle by LITRG) it now is accepted by the DWP that tax exists and should be deducted in measuring what people have to live on.

A death is one of those occasions where the bereaved need the greatest help possible from everyone around them and government departments can play their part.

The Inland Revenue have just issued a new leaflet called 'Contacting the Inland Revenue when someone has died' (IR45). Regrettably, an opportunity has been lost to provide low income customers with a service that meets their needs.

Going overseas for a significant period of time or permanently, requires an individual to disentangle as simply as possible from the Inland Revenue. Being on a low income does not necessarily make the process easier.

We consider in this article whether the Revenue make things as simple as they could do.

The concept of your generous tax credits system is to lift people out of poverty. But from time to time, the reverse is true and Inland Revenue systems are not yet sufficiently honed to react to real need when people are at their most vulnerable.

When they are on income support the last thing people need is for their child tax credit to be reduced by the Revenue trying to claw back an earlier overpayment. Single parents can be driven below the poverty income threshold at the precise time of their greatest need.

It is six years since LITRG first made a range of suggestions as to how the Inland Revenue could improve its complaints handling.

Some small improvements have been made over that time, but generally there is a long way still to go, particularly in the handling of complaints from people on low incomes.

With the merger of the Revenue with Customs & Excise to form HMRC the opportunity is there to take the best practices in complaints handling from both organisations and from elsewhere.

The nascent HMRC, the merger between the Inland Revenue and Customs & Excise, is in the midst of a major consultation exercise on its future Mission.

This can be seen as either a genuine attempt to shape the future direction of the new entity or a marketing consultants attempt to explain what this diverse government department will be doing.

When the Revenue make an error and overpay tax credits, this debt can be written off if it is reasonable for the individual to have thought that their award was correct.

Welfare and tax bodies have been unhappy that the Revenue seem to expect tax credit claimants to have a greater understanding of the tax credit system and award notices than is realistic.

John Andrews, the Chairman of LITRG, has therefore written to MPs on behalf of the Tax Credits Co-ordinating Group (see below) to ask that MPs should press for a more generous approach from the Revenue until such time as the award notices are re-designed and the system better understood.

Following the tsunami disaster on Boxing Day, many people living in the UK will be making previously unplanned visits to relatives overseas. But beware: temporary absence overseas can cost a working couple their childcare support payments.

This can come as a big shock and put the couple in unexpected debt, particularly if the partner remaining in the UK needs to have childcare costs met in order to be able to work.

Robin Williamson, Technical Director of the Low Incomes Tax Reform Group (LITRG), considers why the Comptroller and Auditor General has qualified the Board’s accounts in respect of tax credits.

This article was originally published in Tax Journal on 22 November 2004 and it is reprinted here with the publisher's kind permission.

The Revenue have announced today the start of another Taxback campaign to try and reach, by a series of publicity initiatives, the millions of low-income families who never reclaim the tax that they have overpaid.

The Low Incomes Tax Reform Group welcomes this move.

Foster carers and adult placement carers can have a look at our website for information on how foster carers’ tax relief works and the favourable rules on the tax treatment of adult placement carers.

The Low Incomes Tax Reform Group (LITRG) has expressed its full support for the proposals in the Disability Discrimination Bill to impose upon public authorities the duty to promote equality for disabled people.

In its response to the Department for Work and Pensions’ consultative paper ‘Delivering Equality for Disabled People’, the LITRG makes a number of recommendations. Among them are the following:

Robin Williamson, Technical Director of the Low Incomes Tax Reform Group, in a series of articles on the LITRG’s work, discusses the role played by the Group in Finance Bill debates in Parliament.

This article was originally published in Tax Journal on 27 September 2004 and it is reprinted here with the publisher's kind permission.

Incapacity benefit (IB) can be a complex state benefit as far as taxation is concerned. It is essential that the tax status is understood or individuals may mistakenly declare it for tax purposes and are taxed when they should not be.

Clear guidance from the Revenue is obviously important.

Three weeks ago we criticised the Revenue website for its Contact Us section and the difficulties in finding one’s way through to the person you need. We pointed out a range of deficiencies.

Although the Revenue still have a way to go, they have been busy with changes to their website and have informed us that other points we raised will be taken up over time. We are pleased that they have listened and constructively approached our suggestions.

The Low Incomes Tax Reform Group (LITRG) have joined with other tax bodies and welfare rights organisations in submitting to the Inland Revenue a list of necessary changes and improvements to the tax credits system. These measures, they say, are the minimum needed to eradicate the common difficulties which tax agents and welfare rights advisers encounter daily, and which in many cases are causing hardship, distress and anxiety to claimants.

LITRG has issued a press release outlining the issues.

There are over a million trustees of charities in the United Kingdom and many have one thing in common. No, not that they are selfless individuals giving of their time to help others. It is that they may be expected by the Revenue to complete a Self Assessment Return.

It is not only charity trustees that find themselves in this position; it can, for example, also be directors of companies formed by tenants to buy out freeholds; or some school governors; or the sports club management committee.

This article has now been updated - you can find our latest comments at /news/index.cfm?id=161

One of the great difficulties for many people dealing with the Inland Revenue is to find the right person who will solve their problem.

The Inland Revenue have just revamped their Contact Us section on their website and we decided to see how easy it would be for the low income customer to find who they should contact with their question.

Jane Moore of the Low Incomes Tax Reform Group considers the recent White Paper on tribunals reform.

This article was originally published in Tax Journal on 13 September 2004 and it is reprinted here with the publisher's kind permission.

An increasing part of our role is dealing with specialist queries from people on low incomes who come into contact with the tax system in various ways, and from their advisers. We are receiving a growing number of queries, both directly and via our website, on tax credits, and over the past few months we have been trying to isolate those to which the answers are not immediately apparent from Inland Revenue literature or from other official sources.

We have analysed these questions, and others that we have found (both from our own experience and from discussion with colleagues) need clarification, into a list of FAQs. The FAQs are listed below and we shall of course post answers as they become available.

In the article which can be accessed by clicking the link below, Jane Moore summarises what is happening in the area of tax tribunal reform.

This article was originally published in Tax Journal and it is reprinted here with the publisher's kind permission.

The vast majority of pension credit recipients do not pay tax. The levels for pension credit have been set to reflect the higher age tax allowances that are available for those who are 65 and over.

However if you are under 65 and receiving pension credit your tax allowance will only be £4,745 for 2004-05, so you could well pay tax to the right hand of government whilst receiving a credit from the left hand. You can also be 65 and over and get pension credit and pay tax, but it is less likely.

TaxHelp for Older People (TOP) the free tax advice service for older people on low incomes was visited by the Moneybox team at one of TOP's regular sessions at Age Concern Wolverhampton.

The TOP idea was developed by LITRG three years ago and put into practice in the South West of England and in Wolverhampton. It has expanded from that base until now there are nearly 40 different locations. As from April 2004, a new Charity, Tax Volunteers has been established to try and take the concept nationwide.

The original funding for the initiative was generously provided by the Nuffield Foundation and the expansion is being supported by the Chartered Institute of Taxation, the Association of Taxation Technicians, the Inland Revenue and Awards for All.

Big banks badly let down their low income customers. This is the conclusion of a review undertaken by the Low Incomes Tax Reform Group.

A mystery shopping exercise in over 50 branches revealed that only 20 could provide an up-to-date registration form to prevent the banks deducting excessive tax. Not a single bank put the form on display or provided obvious publicity to warn their customers that they may be paying too much tax.

Overpayments of tax credits cannot be avoided altogether, because they are built into the design of the system – they are part of how the whole process works. But they can be reduced if claimants are careful to tell the Revenue promptly if their income or circumstances change during the tax year.

In this article, the second in a series of three, we look at what must be reported to the Revenue, and what it is advisable, but not compulsory, to tell them in order to stop overpayments from building up.

The budget contained an interesting range of measures designed to enhance support through the tax and tax-benefits system for people in work, disabled people, parents whose employers provide childcare facilities or vouchers, and parents of older children in training for work.

We were also pleased to see one of our early recommendations ? the short tax return for those with uncomplicated affairs ? seeing the light of day.