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The Low Incomes Tax Reform Group (LITRG) is pressing HMRC to compensate pensioners who are continuing to overpay tax through incorrect application of PAYE codes.

From April 2007, tax on retirement annuities will be collected via PAYE. LITRG believes that if handled properly, this would have made life simpler for pensioners on low incomes, but because of inefficient systems within HMRC, the switch is beginning to look like a shambles.

LITRG has been campaigning for many years, for deduction of tax at the basic rate of 22% from retirement annuities to stop, as it believed too many elderly people were paying tax at the starting rate of 10%, or not at all. Collecting the right amount of tax from each pensioner through PAYE seemed the obvious and proper solution.

The Group also believes that HMRC delays in writing to people who had overpaid tax deprived many pensioners of repayments of tax due to them for the past. LITRG has always advocated compensation for these people but past pleas appear to have fallen on stony ground.

LITRG is now repeating this call in the light of further poor treatment by HMRC and suggest that formal complaints are made and cash compensation requested.

Ruth Kelly MP, the Government Minister at the time in 2004, gave an undertaking to look sympathetically at all issues arising from the transition and to resolve matters “as quickly as possible”. Almost three years on LITRG reports the following issues:

• Helplines which have been in meltdown in the most critical month of the year for a pensioner who is owed a repayment (31 January 2007 was the final date for reclaiming tax for 2001/02);
• Many pensioners awaiting a response to letters;
• A lack of reaction to forms which were returned to HMRC weeks ago; and
• Misleading information on the HMRC website when searching under “retirement annuities”.

LITRG is also concerned about a range of new issues, including:

• Non-taxpaying pensioners receiving complex code numbers rather than a simple NT (no tax) coding.
• There seems to be a lack of liaison between the tax office dealing with retirement annuities (Leicester & Northants) and other tax offices holding taxpayer records.
• There are many annuitants who have still not been alerted to the change, either by HMRC or their pension payers.
• HMRC seem to be taking a view if they do not have enough information they will overtax people in the short term and get them to claim it back.

This is a far cry from the promises of Ruth Kelly, back in 2004 and LITRG believes that the problems now being facd are a result of HMRC's lack of urgency, investment and publicit. It is not a good position for many of the lowest income pensioners and the Group is pressing HMRC to avert some of the worst effects on the most vulnerable by:

• ensuring that if tax was not being paid before, then tax should not be deducted now;
• staffing helplines adequately to deal properly with those customers who are baffled by what they have received; and
• accepting claims for repayment for 2000/2001 and earlier years, even though the deadline has theoretically passed.

Whatever happens, pensioners who are overtaxed or refused repayments should consider complaining and seeking compensation. Details on how to complain to HMRC are set out in leaflet COP1: Putting things right. How to complain.

Links 

HMRC leaflet COP1 Putting things right. How to complain

Low Incomes Tax Reform Group