Thousands Likely To Have Over-Paid Tax On State Pensions In The UK

by Amanda Banks, Tax-News.com, London

12 December 2001

The Low Incomes Tax Reform Group (LITRG) from the Chartered Institute of Taxation (CIOT) has declared that thousands of pensioners are being overcharged tax by the Inland Revenue on their State Pensions and urges all pensioners to check up on their tax situation in case they are affected.

The LITRG is campaigning for a simpler tax system and better tax administration for those on low incomes. The Group has a Pensioner's Panel of over 200 pensioners who write in with their day-to-day experiences of the tax system as well as running free tax clinics for pensioners on low incomes in Wolverhampton and the South West of England.

The list of the most common errors the LITRG has discovered includes:

• Excessive pension estimates in tax codings or assessments with no checks by the Revenue on the actual amounts received.
• Revenue confusion as to whether pensioners have received a full year's pension or only part.
• Revenue delays in acting on information given to them about the start of a State pension.
• Interest threatened in situations where pension payments have been delayed due to government error.
  

LITRG Chairman John Andrews explained: 'The evidence of our postbag and clinics shows that there are problems the Inland Revenue need to resolve. In the meantime, pensioners should check their coding notices and assessments as they could well find that they are being overcharged through Revenue error.'

Now that the State pension increases have been announced for next year the LITRG urges the Revenue to make it clear if a pension estimate is used in a coding notice and to only include the amount of a new pension from the pensioner's birthday to the end of the tax year.

The Group is also requesting that when pensioners receive their pensions in arrears they should only be assessed on the amount they actually receive and it should not be treated as though it were received in advance. Futhermore, when the Revenue fail to act on pension information received and subsequently arrears of tax arise, the pensioner should be informed of the Revenue's mistakes policy, which may provide relief and the pensioner should not be charged interest on late notification of pension arrears that arise through no fault of their own.

Ultimately, the LITRG wants to see a change in the law to make it clear that pensioners should be taxed on what they receive from the State rather than on their entitlement, which they may not receive until some time later.

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