HM Revenue & Customs is preparing to reclaim tax from up to 420,000 pensioners as it attempts to correct errors it made in applying PAYE regulations on pension income dating back to 1983.
According to the latest National Audit Office report on HMRC’s accounts, HMRC has been failing to collect all the tax due on pension income since 1983, warns Birmingham accountancy network UHY Hacker Young.
It is estimated that HMRC’s error could affect around 420,000 pensions and has resulted in up to £135 million in lost tax revenue every year for the past 25 years.
UHY Hacker Young points out that HMRC will not issue pensioners with correct PAYE codes until 2009-10 and whilst HMRC has agreed to waiver unpaid tax for the years up to 2007-08 it will begin reclaiming unpaid tax for 2008-09 and 2009-10 during 2010-11.
Malcolm Winston, Partner at UHY Hacker Young comments: “The pensioners hardest hit by HMRC’s mistakes will be those on low incomes who will face a bill for up to two years worth of unpaid tax on top of higher tax bills.”
“HMRC would argue that these pensioners have benefited from lower tax bills in the past but receiving a demand for payment from HMRC is likely to cause a great deal of anxiety for those pensioners who are less well off.”
HMRC has said that where the collection of underpaid tax could cause financial hardship it will arrange for repayments to be collected over a longer period and has acknowledged the need to provide those affected with advance warning of the changes.
However, Mr Winston says: “These changes may go unnoticed by taxpayers who do not have access to professional advice and who may not have adequate resources to make the repayments.
“Higher tax bills will come as a major blow to those already struggling to meet rising fuel and food bills.”