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?

From 6 April 2006 the rules about how pensions are taxed changed, and if you want to cash in a small pension, or several small pensions of up to £16,500 in value, 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.

It is important for everyone in the UK to know whether one is domiciled in one of the countries of the UK for tax purposes.

If you are not UK domiciled there are advantages, although planned changes in the law effective from 6 April 2008 are trying to remove some of those, particularly for the wealthier resident.

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.