'Buried in a Good Old Age' Genesis, Ch.15, v.15.
Article on the LITRG volunteering pilot scheme for older people by Sarah Prone, who runs her own tax practice in Dorchester, Dorset, is a member of ATT Council, ATT membership committee and Tax Adviser editorial board.
Published in October 2001 issue of Tax Adviser.Key points for older taxpayers
- Is Age Allowance appropriate and at which rate?
- Don't forget the Married Couple's Allowance
- Should the case be removed from the SA system?
- Should they sign as a non-taxpayer for bank and building society interest?
- Is the amount of State pension included in the coding correct?
You are a long time dead, as the saying goes. It now very common to be a long time retired first. When you are sweating away over a hot desk all week, the idea of retirement is very appealing. However, the downside of retirement is often severe financial restrictions. What are the effects of living on an income increased only by inflation or on the interest generated by a fixed or reducing capital sum? With the problems created by a tax system not properly focused on the needs of the elderly and the effect of a low inflation, low interest economy in mind, the Low Incomes Tax Reform Group (LITRG), headed by John Andrews, decided to set up two pilot studies to investigate the fiscal problems. Information received through LITRG and studies of the USA and Canadian models suggested that incorrect taxation was a serious problem so, with backing from the Chartered Institute of Taxation and the Nuffield Foundation, the TaxHelp for Older People initiative was born.
The two pilot areas for the study are Wolverhampton and Rural Dorset/East Devon/South Somerset representing the inner city and the countryside, respectively.
Call to arms
Last winter John Andrews sent out a clarion call for volunteers to all members of the CIOT and ATT in the relevant areas. The response was not overwhelming but, with extra suport from the ICAEW, both areas were up to strength by the launch date of 5 April 2001. I joined as an adviser at the beginning and run surgeries approximately once a month in either Dorchester or Bridport. There are surgeries in other market towns in the rural catchment area and some advisers field queries by telephone.
Both schemes have been running for several months now. In Wolverhampton, the tax surgeries are run from the Age Concern premises in the centre of the city, giving one contact point for all enquiries, but the demographic spread in the rural area prevents a central point from being a viable option. The vagaries of local transport means there is a very real chance of a pensioner being delivered on a Wednesday, missing the return bus and not getting home until Friday! Several surgeries scattered over the target area are more appropriate. If a caller's question can not be dealt with by a telephone adviser, a face-to-face interview is arranged and this system is working well.
The criteria for callers to qualify for free advice are that they are over 55, retired (or just about to retire) and have a household income of under £15000 per year.
Out in the field
So what have we found during these initial months? Firstly, the problems experienced are similar in both locations although Wolverhampton has not been attracting as wide an ethnic variation as anticipated despite close collaboration with the city council and the provision of interpreters.
We expected to find problems with the Revenue 'getting it right' and have seen many examples of incorrect codings where, for example, two or more occupational pensions exist and neither Revenue office takes responsibility for ensuring that the code is as accurate as possible.
Age allowance is another area where a little more organisation on the part of the Revenue would enable them to issue correct codings during the year. Sometimes the original award of Age Allowance is missed but more frequently the uprating at 75 is overlooked because the computer does not hold the date of birth.
You don't need me to tell you that paying the correct amount of tax is vitally important when on a small income as a small reduction in income can mean hardship. Only last week I contacted a tax office on behalf of a recently widowed lady, who will be 65 in January 2002, and asked for her code to be increased. I was told that a form to assess her circumstances would be sent to her nearer the time. After assuring the Revenue Officer that the lady's income would not come anywhere near the £17000 restriction threshold, the RO agreed to issue a revised code so that the taxpayer had the benefit of the tax relief during the year. Surely it would be possible for all upcoming pensioners to be identified in the year prior to their 65th bithday so that the tax code could be correct throughout the year?
It would be unfair to place all the blame on the Revenue for tax related problems encountered by the elderly, although they do not help their image by being unable to explain matters clearly to taxpayers by telephone, letter or even through their own literature. Take, for example, the booklet which accompanies each coding notice issued. It does not include an example of how to check your code if it contains a restriction for other income, eg the State Pension. One very worried gentleman thought his tax bill was going to increase by £50 a month because he followed the computation in the booklet but failed to realise that his code had already been adjusted to collect the tax due on his national insurance pension. The Revenue are now reviewing the matter and considering issuing a special explanatory leaflet to pensioners.
Other guilty parties include occupational pension scheme administrators who fail to implement the codes when issued. In the case of one County Council in the Midlands this went on for over two years and only came to light when the Revenue issued large assessments to the pensioner to recover the tax underpaid. Fortunately, with our intervention, the Collector became very understanding and, although the problem was not of the Revenue's making, took a compassionate view and allowed a reasonable time to pay.
The third guilty party is the tax advice profession. It has been very worrying to discover that people are not always receiving the service we would hope to be giving. For example, one lady came to me to query why she was being taxed on one hand but always received a repayment at the end of the year. She employed a local firm of accountants and they had continued to process form R40 for her year after year despite all her investments being in building societies. Her income was so low that she should have been advised to register as a non-taxpayer and would have saved herself the fees as well.
Talking to people has thrown up some very interesting information about being retired in Britain today. One of the most acute areas is the fact that between the two extremes of income; at one end pensioners who are very poor therefore are in receipt of income support, housing benefit, council tax rebates and the like and, at the other, those with large, comfortable occupational pensions and substantial savings there is a crevasse. At this point is a group who just miss qualifying for state help but who have relatively small incomes, out of which they have to pay all the running and maintenance costs of their homes as well as their own living expenses. I have seen several cases where widows have received reduced pensions after their husbands' death and been forced to sell their homes to realise income on capital on which to live. The capital from their home then puts them beyond help from the State. This may seem a proper use of resources but these are frightened people who are proud to be self-reliant and do not know how long they have to make their money last . It may easily be another 20 years with no opportunity to replenish the pot if it runs low.
There is a popular misconception that the retired are forgetful, mentally feeble and, quite frankly, rather dim when it comes to finance. Not at all! The people I have met have been very astute and know their income and expenditure to the penny. They are not willing to accept a change in circumstances without knowing the reason why. Admittedly any scheme of this nature will automatically attract the more able and articulate members of the target group first but in Dorset we have experimented with a short talk about tax to a lunch club. The response was amazing. They metamorphosed from a slightly sleepy, post-prandial gathering, chatting to their neighbours about last night's EastEnders to a focused, lively and information hungry audience, keen to understand how the tax system works and the effect on them.
The work of Taxhelp for Older People has exposed a need for more information to be available to the retired at little or no cost to them. This is because many are managing such tight budgets that they would feel unable to risk paying an unknown amount for advice.
Although the Revenue claim to provide such a service, the feedback that we receive is that the staff are often unable to explain matters clearly and only see the question from one angle. Also the Revenue is not perceived as impartial. However, it must be said that the Revenue members involved in the contact groups for the project are keen to improve the situation.
It will be interesting to see how the remainder of the year unfolds and whether the experiences detailed above are repeated.
Finally, if the scheme does go countrywide next year and you have the chance to take part, do so. Manning one of the advice surgeries is a very rewarding experience. Firstly, no worries about chargeable time; many of the callers find it very hard to believe that all the advice is free! It's only for a few hours per month and the satisfaction of seeing someone come in weighed down with worry but leave smiling is definitely worth giving up a little time.
020 7235 9381
October 2001 by