Article regarding the impact of the UK tax system on poorer older people, by Robin Williamson, senior technical editor with Croner.CCH and a member of the CIOT's Low Incomes Tax Reform Group.
Published in the February 2001 issue of "Tax Adviser"
‘The fugitive years slip by, and godliness brings no reprieve from the wrinkles of advancing age or from unconquered death.’
Nor does it bring any reprieve from the demands of the tax system. In our latest report, ‘Representing the Unrepresented’, the Low Incomes Tax Reform Group (LITRG) catalogue the difficulties older people on low incomes face in understanding their tax, and describe what we are trying to do to make life easier for them.
When we first began to study the way the UK tax system impacted upon poorer older people, we were struck by two things. First, by the extraordinary complexity, attributable at least in part to the way in which successive tax measures, some of which were even designed to assist older people, had been introduced peicemeal over the years with no particular rationale or consistency. Secondly, we observed how especially vulnerable older people were to the complexities thus forced upon them, being less able to cope through infirmity, creeping disabilities, bereavement, retirement, and other life changes associated with age. And yet, when the expensive, inflexible machinery creaked into action, it would all too often show that a trifling amount of tax, or even a refund, was due.
However, the Revenue’s revival of the Taxback campaign last year showed what could be achieved through good consultation and by working together effectively.
In the early 1990s, the Revenue ran the ‘Taxback’ campaign to inform non-taxpayers that they could register to receive bank and building society interest gross, and low taxpayers that they could reclaim the tax deducted to the extent of their personal allowances. Nevertheless, when in December 1998 we published our first Report ‘Older Taxpayers on Low Incomes – the Case for a Friendlier Tax System’, we found that many people were still unaware of this, and we called for the campaign be revived.
We also recommended that Form R85, which is used to reclaim tax over-deducted from bank and building society accounts, be revised to make it more user-friendly to claimants.
Both these recommendations were accepted, and the Revenue began a new Taxback campaign in consultation with LITRG, Age Concern, Help the Aged, the British Bankers’ Association (BBA) and the Building Societies’ Association (BSA). Members of LITRG helped with the design of posters, advertisements, the Taxback pages on the Revenue website and other campaign literature. We asked our ‘pensioner panel’, a group of older people who keep us informed of their experiences with the tax system, for their views on Form R85, and these we passed on. The Revenue were most appreciative, and have expressed a willingness to carry out a radical re-appraisal of the whole R85 process.
We were delighted to receive acknowledgment of our part in the campaign in the official press release which heralded the start of the main ‘theme week’ at the end of the October, in which LITRG’s Chairman John Andrews was quoted alongside Paymaster General Dawn Primarolo.
Complaints and leaflets
We trust that the spirit of co-operative consultation that came to the fore in the Taxback campaign will endure. But there are times when Revenue service to older people is not as it should be. On such occasions older people, like any other customers, might wish to complain. Now the Revenue internal manuals on complaints handling are a model of good practice, instructing staff to treat any expression of dissatisfaction as a complaint and to put themselves in the taxpayer’s shoes when assessing its merits. However, our correspondence with pensioners indicates that the Revenue’s handling of complaints does not always match the soundness of their precepts.
The failings of tax offices are compounded by ignorance on the part of many older people of the standards of customer service they are entitled to expect. Equally, many are put off making a complaint for fear that it will damage their own relationships with the Revenue. So, to point the way, we issued a press release with simple advice on how to complain, what standards of service to expect, and what further avenues are available when the complainant feels that their complaint has not been satisfactorily dealt with. This received fairly wide coverage in the national press.
Along with Age Concern and Help the Aged, both of which are represented on LITRG, we have offered to play a constructive role in improving all leaflets relevant to older people. In the event, apart from Taxback literature, we have been able to contribute to revisions of IR110 (on savings), IR121 (the main leaflet for pensioners), and IR170 (blind person’s allowance). And the new Gift Aid booklet for individuals reflects our concern that low-income donors should be warned not to sign a certificate unless they have paid tax at least equal to the amount of the tax on their gift.
The ten per cent rate
When in March 1999 the Chancellor fixed the starting rate of income tax at ten per cent, but only on earned income, many representative bodies criticised the exclusion of savings income as discriminatory to those – such as older people – who depended to a higher degree upon their savings. It was partly in response to LITRG’s campaign to highlight that injustice, and also the technical anomalies which the proposal threw up, that the Chancellor announced in November 1999 that the ten per cent rate would be extended to savings income, retrospectively to the beginning of the tax year.
Pre-announcement of age allowances
This year, in his pre-Budget report, the Chancellor responded generously to another LITRG campaign. Previously, the tax allowances for the over 65s have not been announced until the March Budget just before the start of the tax year, even though in the last couple of years the basic personal allowance – linked since 1999 with the NIC primary threshold – has been announced in the previous November. Consequently, unlike the personal allowance, the age allowances have not been reflected in the PAYE coding notices sent out at the start of the calendar year. Later notices of coding, showing the uprated amounts of the allowances, have corrected any over-deductions of tax, but the whole process of sending out multiple coding notices, each showing different amounts, has caused endless confusion. By pre-announcing the age allowances for 2001-02, the Chancellor has now made the system that much simpler for older people.
The self-assessment trap
One of the less sensible aspects of the UK tax system is its tendency to collect tiny sums of money through the use of unwieldy bureaucratic mechanisms. When self-assessment was introduced, it was said to be for those with complex tax affairs. Nobody would consider the tax affairs of, say, an 80-year old widow with a state pension and a few pensioner bonds as complex, and yet she does not have to earn much more than £6,000 per annum before she comes within self-assessment. Apart from PAYE, self-assessment is at present the only way in which tax can be collected (leaving aside methods of collection where there is irregularity or wrongdoint), and this leaves the older person with a state pension and small amounts of untaxed income open to the full panoply of self-assessment.
It was in response to our highlighting concerns about older people’s struggle with self-assessment that in July 1999 the Government raised the threshold of untaxed income that would trigger the issue of a return to £2,500 a year, where tax could be collected through PAYE. The Revenue have assured us – and Dawn Primarolo has said in Parliament – that they are continually reviewing the system to ensure that its impact on pensioners is minimised. We remain convinced that sensible programming of computers in 2001 will enable the Revenue to remove many more pensioners from self-assessment, and shall continue to press for a resolution.
PAYE on annuity income
We would also like the life companies to operate PAYE on all annuity income so that poorer pensioners do not face complex procedures to claim back tax deducted at source. Indeed, some life companies already do this. At first the Revenue seemed reluctant to ‘impose further burdens’ on the life companies, but Dawn Primarolo has said that ‘we are in discussions with the industry on how to simplify the system and make it much more responsive to pensioners’.
It is a feature of the current system, under which one arm of government gives out welfare benefits and another claws back tax on those same benefits, that the officials of the one department have little idea of the rules that apply to the other. Hence, the DSS literature says practically nothing about the tax status of benefits, while the Revenue officers who handle the tax affairs of pensioners on low incomes often do not know whether or not benefits are taxable, and sometimes make mistakes.
We believe that, by working together, the Revenue and the DSS can make life easier for pensioners caught in the tax/benefits trap. There now is a further imperative in view of the drive for more ‘joined-up government’ and delivery of co-ordinated services for older people under the Better Government for Older People initiative . The formation of the Pensioners’ Directorate by the DSS in April 2001 will present a good opportunity to tackle this issue. The rationale behind the Pensioner’s Directorate was described by Alistair Darling as follows:
‘Pensioners deserve a modern, inegrated service designed to meet their needs, one that is convenient for them, rather than what is easiest for the Government.’
In the same spirit, we have long argued that the Inland Revenue should have a ‘pensioners’ champion’: an Older Taxpayer Customer Service Director with a remit to address all issues affecting older customers. We also believe that every tax office should have an individual ‘badged’ as the customer service representative for older taxpayers. Indeed, some of the more forward-thinking offices already have such an individual.
Pensioners have rarely been so high up the political agenda as they are now. In 2003, the pension credit – by which the Government will supplement the state pension and minimum income guarantee by topping up modest amounts of personal savings, occupational pensions or part-time earnings – is intended to bring some measure of tax/benefit integration in its wake. We shall do what we can to influence this process, continuing to press for a pensioners’ champion within the Inland Revenue to safeguard the interests of older people from the tax side of the equation.
In April 2001 we intend to launch the first volunteer tax advice service in the UK, manned by tax professionals, since the formation of TaxAid in 1992.
In our report in December 1998 referred to above, we presented the results of our research into Government-supported programmes in Canada and the USA where members of the community help their fellow citizens on low incomes to complete their tax returns, and give advice on simple tax matters. In some cases this enables those who are helped to secure their entitlements under the tax and welfare systems. For the Revenue administrations in those countries, there is the advantage of better compliance and more accurate forms, while official time and costs are saved through the intervention of volunteers.
With generous funding assistance from the Nuffield Foundation, we propose to test whether the North American prototype can work in the UK by running two pilot schemes in an urban and a rural location – Wolverhampton and Dorset – under the aegis of the Chartered Institute of Taxation. The help offered by the pilots will be confined to older people on low incomes, and we expect them to show us much about the types of service older people need, and to provide lessons that will be of use in the design and implementation of a wider nationwide scheme if the need for one is demonstrated. The Revenue are supportive of this project at both local and national levels.
If the pilots are successful in laying the foundation for a nationwide scheme, it could prove a watershed in the way in which the requirements of unrepresented taxpayers are recognised within the system.
In conclusion, the LITRG has shown in its short existence that it is possible to work in partnership with the Inland Revenue and to achieve change for the benefit of the unrepresented taxpayer. We are optimistic that 2001 will see further co-operation from the government and its agencies and more of our recommendations put into practice.
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February 2001 by