Improving the tax system for the elderly

Rebecca,

The numbers in this article don't add up.  50,000 times 207 is just over 10 million not 100 million.  Please could you check and update as necessary.

Thanks,

Jim.

As a TOPs helper and in the course of my day job I see problems every week caused by wrong PAYE codings and multiple source income.

The usual TOPs surgery scenario is, husband dies, wife receives an enhanced state pension plus a percentage of husband's occupational pensions. Maybe a P161 is issued, maybe it isn't (not the best time to be sorting out yet another form!). Then the PAYE coding lottery starts, sometimes with multiple personal allowances, sometimes with no restrictions for the state pension. Sometimes with age allowance, sometimes with no allowances at all.

At least with my own clients it all comes out in the wash with the tax return. However, most of these people do not do a tax return and if the coding collects too much or too little tax it stays that way. That is until HMRC discover the underpayments (never in my experience the overpayments, odd that). They then feel no shame in sending out several years tax calculations together with a demand. In one case that demand was more or less equal to the pensioners net income for the current year. Once again we have to try to use ESC A19 to rescue the situation (another lottery). Then the "but the P161 form was not returned" argument starts.

A pensioner with their state pension and one or maybe two occupational pensions should not be a complicated case. However, it currently defeats the UK tax system, day in day out.

I would like to think that the new integrated computer system will stop this happening. However, I suspect that the problem will not be solved until all tax payers have a UTR and their affairs are dealt with from one central point (not exactly rocket science!).

Until this and the other many day to day problems (tax credits, huge backlogs of paper returns etc etc) are solved HMRC should leave dabbling with tax avoidance and the use of legislation in "ways not intended" well alone. Lets sort out one muddle at a time.

We have now received two P161's for different clients - both addressed to our partnership,

the only printed details being a National Insurance number.

I rang for a further clue to which client it refered to, only to be told that without a name 

address etc I could not pass security checks, therefor they could not give me any information!

Don't you have a database of your clients' NI numbers, such as comes with IRIS? If not, I can recommend it as it saves us a lot of time when we get HMRC letters that only quote an NI number.

I struggle to explain to clients that the state pension is not taxable at source and therefore any other pensions receive an abnormal level of taxation at source via the PAYE code to balance out the total tax correctly.  This is a major anomaly that needs sorting out.  There should be some method of pooling pensions, including the state pension, so that each is taxed at the same level.  It is terrible when the elderly get a retrospectve tax bill and they are on fixed income.  The effect on most retired people is out of all proportion to those on earned income.

I noticed purely by chance that my mother was not receiving age allowance on her tax code. The HMRC default was to assume she has income exceeding 22k pa (she never ever has) so did not qualify. Is this justifiable?

It is the equivalent of setting an emergency tax code for school leavers at a higher level with an assumption that they will be higher rate taxpayers with income of 35k !

In the interests of customer service, why should agents have to locate clients from a National Insurance, or indeed, any other number? Clients have names and HMRC should use them in all correspondence to clients and agents. If the HMRC system cannot identify taxpayers by their name, then it is not fit for purpose.

What I am told is that the P161 is issued to the taxpayer and the issue of duplicates to agents is a gremlin in the new system - you can throw them away !

I have a client who has two small pensions which together add up to approx £1,000 pa.  The provider (both with same company) states that they are not required to supply EOY information because the pensions are so small.   Each year they begrudgingly issue paperwork for these pensions buit it is always a struggle.  Surely there must be some requirement to issue a statement?  Lots of people have small pensions of a few hundred pounds of year.  My client is of the opinion that he doesn't have to pay tax on these as they are so small, so I am the villain.  He is pretty easy so he always takes my word for things, but it does make life difficult.  He has a much larger private pension and is still running a business so in the grand scheme of things it is a minor irritation.

TheAncientOne

I personally would be happy with the system as it is, PROVIDED that it is operated correctly. Collecting all the tax from an occupational pension via a restricted code or even a K code seems perfectly acceptable to me. Yes, it may look a little strange at first but it should work, and then pensioners would not get any tax demands as all the tax would have been deducted at source.

Any system that sets tax allowances or tax credits at a level dependent on earnings determined retrospectively, needs a robust and fair system to amend the claim when the actual figures are known. This introduces a huge extra level of complexity. We have seen the blunt instrument used to "solve" this on tax credits, perhaps a new system that deals with age allowance amendments can be introduced that has a little more finesse.

In view of the fact that HMRC have been demanding that electronic PAYE information is supplied with the Taxpayers Date of Birth included AND the fact that HMRC has direct access to the NIRS ( National Insurance Recording System ) computer system which contains exact details of each Individuals Date of Birth and National Insurance pension status, how and why should any Taxpayer not automatically receive any Age Related Allowances and have their State Pension properly dealt with?

Could it be that HMRC are just incapable? Could it be that HMRC senior management have no understanding of the PAYE system in particular and the taxation system in general? Could it be that HMRC have given their Computer Partners a totaly useless set of Requirements?

Perhaps we shouldn't worry, as these senior managers will no doubt, shortly appear in front of the Public Accounts Committee of the House of Commons and tell them that they "have a cunning plan to sort this problem out", just as they have done at all previous appearances.

It's the old story, if no one has the responsibility for anything, many, many things can and will go wrong, or am I just being cynical?

I agree that the Revenue should use the clients name on all communications as not to do so is to say the least a lack of courtosy and shows a lack of respect to those whom they call customers.

Those business who care about their customers make sure that they address them correctly as not to do so only creates ill feeling and possible loss of the customer.

Whilst on this point if the Revenue insist on a reference then each taxpayer should have only one reference either the NI number or the UTR.  My preference would be the UTR as it would then be able to apply to company's as well as individuals.

 To all of you out there dealing with the newly retired, let me beg you to have no truck with HMRC's favourite response to allegations of failure by them to issue Codes that were correct( because, for example , State Retirement Pension left out) and processed in good time: " we never got back the P161, guv". This is total rubbish : one of the Manuals states that a Code must be restricted by the State pension if a P161 has not been received. Also dismiss any defence that, for reasons unknown, no such form was ever sent to the retiree.

Come on, HMRC: we are talking about a non-statutory form, and how about the back-up you have in the form of automatic notification of the grant of a State pension from DWP and the legal obligation on occupational pension providers to provide details when their payments commence? It is a cop-out and the Department should be ashamed of itself.