New powers granted to HM Revenue & Customs could be set to hit advisers and their pension clients in the pocket, tax experts have warned.
Since last month HM Revenue & Customs has been given the power to use information already available to it to collect tax from pensioners whose earnings are greater than the personal tax allowance.
This new power for HMRC removes pensioners whose earnings are greater than the personal tax allowance from the self-assessment tax system from next year.
Taxpayers with complex affairs will be asked to submit only rudimentary information, with HMRC completing the rest of the assessment automatically.
But this could be bad news for advisers, according to Gill Philpott, tax specialist at advice firm Bellpenny.
Ms Philpott said self-assessment taxpayers have traditionally used an adviser to check the information on the forms, but may think they now no longer need this service any longer.
She said this is bad for clients who may end up not using the various allowances and reliefs in the most effective way and so end up paying more in tax than they need to.
Nimesh Shah, partner at Blick Rothenberg, said: “The actual concept makes sense but the UK's complex personal tax code makes the proposition largely unworkable.
“Few are likely to benefit and it will possibly lead to people paying the incorrect amount of tax.
“Taxpayers are relying on HMRC's data being correct. They will still need to review the return to ensure accuracy and will only have 60 days to appeal the return if they believe it is incorrect, which isn’t enough time.
“There have been instances where HMRC’s system has got the calculations wrong and resulted in people being penalised.”
Paul Haywood-Schiefer, assistant manager at the same firm, said: “Actually, the 60-day appeal window sharply shortens the period of time people have to gather the information needed to accurately complete their tax returns.
“Rather than having nine months after the end of the tax year to put together their information and check they have everything before submitting a tax return of their income and gains for a year, the individual is now going to receive a calculation from HMRC at some point, and will then have just 60 days to check it, get any further information from their employers or banks, to then agree or go back to HMRC with amendments.”
Effective from September 2017, the new system means that rather than asking individuals to fill in a return with lots of information, HMRC will now use data it already holds to calculate what tax is owed.
The categories of taxpayers under the new simple assessment are limited to new state pensioners with income over the 2016 to 2017 personal allowance (£11,000) and those who have underpaid tax through PAYE, but there is no mention for those who have overpaid tax.
Existing state pensioners in the same situation as the new state pensioners will have to wait until next year before they can be removed from self-assessment and those with other sources of income, such as from savings, will need to carry on completing a normal tax return.
Mr Shah said: “At the moment very few are likely to benefit. Individuals not in these groups or with more complex tax affairs will continue under the traditional self-assessment regime.
“The attempt to simplify the tax returns system is welcome, but this new mechanism seems an unnecessary addition to the already cluttered personal tax compliance regime.”
Ms Philpott said HMRC are being “sensible” in rolling out the changes gradually.
david.thorpe@ft.com
