Elderly face shock bill for back taxes

CAMPAIGNERS are calling on the Government to scrap plans to claim back tax from Britain’s poorest pensioners.

The Treasury is preparing to claim back tax from Britain s poorest pensioners The Treasury is preparing to claim back tax from Britain's poorest pensioners

The Treasury is preparing to start clawing back income tax from up to 420,000 unsuspecting recipients of small pensions who are about to discover they owe hundreds of pounds in backdated taxes.

For many years, HM Revenue & Customs authorised pension prov­iders to ignore the PAYE regulations by instructing them not to deduct tax from small pensions because it would be too complicated to administer.

This remained the status quo until 2004 when the Government decided it could no longer con­tinue with this practice.

Tax officials decreed income tax should be applied to these pensions from April 2007, but so far none of those affected are aware of this.

The Revenue caused this information black-out by deciding to wait until its computer systems could automatically identify those who should pay the extra tax before telling people they owed money, says the Low Incomes Tax Reform Group (LITRG).

“This method may have been convenient to the Revenue but it meant low-income pensioners would be put into debt without their knowledge,” said John Andrews from the LITRG. “If the Revenue continues with this plan, thousands of pensioners will be told later this year that they have between one and two years’-worth of tax arrears to pay.”

The LITRG says the Revenue plans to contact the pensioners affected between August 2008 and February 2009 but is ­concerned that most of those affected will have no idea that their tax bills are due to be increased by more than £200 a year on average.

“This may be the first time they have been in debt in their lives —and unexpected debt as well,” added Andrews.

While the Revenue indicated it had received legal advice saying it would not be able to write off this debt for pensioners, the LITRG said the Revenue could — and should — exercise discretion.

“We have obtained advice from a leading tax and human rights barrister who has told us that, in certain circumstances, the Revenue does have the discretion not to collect tax that is legally due,” said Andrews.

“We acknowledge the Revenue is responsible for the care and management of the tax system but we are asking it to exercise some judgment in this case.”

Andrews points out there have been other situations where the Revenue has agreed not to pursue people — where it would take too long and cost too much to make it worth collecting the sums of money involved.

For example, earlier this year, the Public Accounts Committee noted the Revenue had already written off £700million for tax credit recipients and was unlikely to collect a further £1.6billion.

The LITRG is calling on the Revenue not to pursue the pensioners for past liabilities, adding that collecting tax only for future periods is the “right way forward”.

“There is a fair amount of discretion built into the tax system,” said Andrews.

“Why might relatively small amounts for low-income pensioners be so different? We hope the Revenue will carry out further research and decide it is not worth the effort.”

Mervyn Kohler from Help the Aged said: “It is perfectly reasonable for HMRC to put people on the right tax code from now on, but we don’t agree with HMRC chasing people for amounts of money they didn’t know they owed.”

A Revenue spokesman said: “The vast majority of pensioners pay the right amount of tax on their pension and this issue concerns a relatively small proportion of pensions.”

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