Banks fail low-income pensioners

Published on 12 November 2007

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.

One of the big scandals of the tax system is how often pensioners (and other non-taxpayers) have tax deducted from interest when it should be paid tax free. The system which is supposed to prevent this happening is called the R85 procedure. The bank should enquire of its customer whether they are a taxpayer. If they are not, the bank should give them a form R85 together with a help-sheet. The pensioner should then complete the form and pass it back to the bank. This is authority to the bank not to deduct tax when paying interest into the savings account.

Similarly the bank should explain to the pensioner that should they start paying tax again then they should inform the bank and tax should start to be deducted.

But is this what happens in practice?

Our survey

We visited a random selection of over 60 branches of High Street banks and building societies scattered across England in October 2007. We asked for the forms to have interest paid tax free and we expected to be given forms R85 for the tax year 2007-08 together with the accompanying help-sheet. If read carefully it enables the customer to decide whether they are entitled to have their interest paid tax free and alerts them to the procedure should they become taxpayers at a later point.

It is important to have up-to-date forms and the relevant help-sheet.

What we found was that only 18% of the banks and building societies provided current year forms and less than half of them provided the help-sheets. The building societies in the sample performed much better than the banks although it is a very small selection.

What HMRC and the banks should be doing

The bank is acting as agent of the Revenue in this respect and the R85 and help-sheet are HMRC approved documents.

When most organisations appoint agents to do business for them they usually review what standards the agents are applying and see that the ultimate customers are being well-served. HMRC is not able to do that effectively. This leads to non-taxpayers having tax deducted (at 20%) when none is due and others being paid gross when they have become taxpayers.

Very often the tax deducted incorrectly never gets repaid by HMRC. On the other hand HMRC blame the pensioner for getting things wrong when the R85 authorisation is no longer valid as they have become taxpayers. This will often happen following bereavement when the surviving partner has an increased income having inherited the previously joint income and assets.

HMRC is really to blame because it has delegated one of its important communication and education functions to the banks when it is not in a position properly to police what happens and expects the pensioner to be all-knowing about the correct procedures.

Banks have no great incentive to do better and have inadequate procedures to serve their low-income customers well in this respect. They might say it is not a job they asked to take on.

We have raised this issue numerous times with HMRC but all they do is politely request the banks to do better. That is not good enough from organisations all of which now claim to put the customer at the heart of everything they do.


We have various recommendations:

  • HMRC should not attempt to ask for back taxes from customers who have made mistakes based on a lack of information and HMRC support. To do otherwise would be unacceptable.
  • Similarly, HMRC should be devoting resources every year to matching data in their possession and repaying the tax overpaid for non-taxpayers who did not receive appropriate help.
  • There should be a joint effort by everyone involved to work out how better to serve this category of customer with the information and help they need.

Both HMRC and the banks must take responsibility and not expect low-income customers, who can least afford the loss of money, to suffer because they are not up to the job.


Contact: John Andrews (Tel: 0844 579 6700 Fax 0844 579 6701)