2 Administering tax for older people
6. Most older people who are taxpayers pay tax
through Pay As You Earn (PAYE). PAYE is complex, but the Department
considered it was an effective system for dealing with the tax
of most people. Employers and pension providers deduct tax according
to a tax code calculated by the Department for each individual.
The tax code is used to allocate a person's tax allowance between
each source of income, meaning those people with multiple income
sources receive several coding notices. The alternative to issuing
tax codes would be to require everyone to file a tax return each
year, as is the case in some other countries.[10]
7. Eighty per cent of older people paying tax
have multiple sources of income such as the State Pension, occupational
pensions and part-time employment. They consequently receive more
coding notices on average than other taxpayers. When someone receives
several coding notices it can be difficult for them to check that
they are paying the right amount of Income Tax through PAYE. Some
20% of complaints to the Department from older people are about
their tax code. The Department recognised that the coding system
was complex, but saw it as necessary to ensure the right amount
of tax was collected, no matter how complicated an individual's
tax affairs were. The Department aspired to produce a single document
once a year bringing all of an individual's tax coding notices
together, but it had not set a date for achieving this.[11]
8. Discrepancies can occur between the tax shown
as actually paid by an individual on their employers' or pension
providers' returns and the amount the Department's records show
that person should pay. In March 2009, there were 20 million
'open cases' where the Department had yet to resolve such discrepancies
including around 6.6 million relating to older people. Of these
cases, an estimated 1.5 million older people had overpaid tax
of £250 million, and 500,000 had underpaid tax of £100
million. In November 2009, the Department reported that the total
number of open cases had reduced to 17 million but that it would
not be able to start clearing this backlog until its new PAYE
systems were fully operational in 2010. The Department acknowledged
the importance of clearing the backlog and of giving priority
to those cases where it believed it owed tax refunds.[12]
9. The Department estimates that some 2.4 million
older people have paid around £200 million more tax on their
savings income than they need to. Many, however, do not realise
that they may be able to claim back part of the tax paid or that
they can claim to receive interest on their savings gross of tax
if their income is below the personal allowance.[13]
The Department ran a campaign in 2004 to inform older people they
could claim back tax on their savings and launched a further campaign
in autumn 2009 targeted at Pension Credit claimants. It had experienced
difficulties in encouraging individuals to claim refunds of tax
and was disappointed with the limited success of its recent campaign.
While it was appropriate to target this group because of their
low incomes, they had not responded in large numbers to previous
take-up campaigns. The campaign had so far resulted in repayments
of £51 per person on average. Though relatively small, repayments
on this scale could nevertheless provide a significant benefit
to older people on lower than average incomes.[14]
10. The Department recognised that older people
on low incomes were particularly hard to reach. There were sensitivities
in getting banks and building societies to explore whether people
were eligible to receive interest gross of tax. They would need
to be aware of other tax liabilities to know whether someone should
receive savings interest gross of tax, and people may wish to
keep that information private. Legislation would be required before
the Department could mandate banks and building societies to provide
advice of this sort and it foresaw dangers in asking third parties
to carry out such a role. The Department was, therefore, working
with third sector groups such as TaxHelp for Older People to find
better ways to target this hard-to-reach group. The Department
needed to do more work to help older people understand whether
they were eligible to receive tax back on their savings interest
or to receive savings interest gross of tax.[15]
10 Qq 15, 34 and 105; C&AG's Report, paras 1.3
and 2.2 Back
11
Qq 14 and 36; C&AG's Report, paras 7, 14e, 2.5, 3.10 and 4.6 Back
12
Q 107; Committee of Public Accounts, Second Report of Session
2009-10, HM Revenue & Customs: Improving the Processing
and Collection of Tax: Income Tax, Corporation Tax, Stamp Duty
Land Tax and Tax Credits, HC 97, para 7; C&AG's Report,
paras 2.2 and 2.3 Back
13
C&AG's Report, paras 3.11-3.13 Back
14
Qq 7, 26 and 27; C&AG's Report, para 3.13 Back
15
Qq 8 and 29-33 Back
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