Another tax grab
The Revenue is planning to slash the time we can claim back overpaid tax from six years to four. That could cost tens of thousands of people hundreds of pounds each.
The change is buried away in the Finance Bill that is currently going through Parliament. But it is unlikely to be spotted by any but the most assiduous readers of the world’s most boring document – it is buried away on the 405th page of the 443 page two volume Bill.
There are two groups who are most likely to be affected. First, people who have had tax wrongly deducted from the interest earned on their savings. The Revenue admits that there is up to £250 million sitting in Treasury coffers that it has wrongly taken from savings interest over the last six years. People who pay tax at the 10% rate on their savings still have the full basic rate tax (20% this year, 22% last) deducted from the interest their money earns. And people who should pay no tax have the full basic rate deducted unless they inform the bank or building society they are not taxpayers. Many don’t. At the moment both groups can claim back overpaid tax for up to six previous tax years. By cutting the time to four years the Revenue will slash the available pot to around £165 million.
The Low Incomes Tax Reform Group says that 44% of the claims for refunds it assists with do go back the full six years with an average claim of £1,963. Limiting the refunds to four years will slash the average claim by more than £600.
The second group are those whose tax is deducted automatically from their earnings or pension through PAYE. The Revenue admits that in 2006/07 it made more than six million mistakes processing PAYE and self-assessment. As a result 540,000 taxpayers paid £157 million too much tax. Almost a third of these overpayments are for more than £500 and the average is £290. At the moment those sums can be recovered for the past six years. In future that will also be cut to four years.
But there is to be no change in the time the Revenue can recover the underpaid tax if we make a mistake. That will stay at six tax years (and 20 years if it suspects that there has been deliberate evasion involved).
Parliament will get the chance to debate the change in a few weeks’ time. Let’s hope enough MPs spot it to make the Government think again.
Go back to Paul Lewis front page