Tax  

HMRC in dark about wrongfully taxed death benefits

HMRC in dark about wrongfully taxed death benefits

HM Revenue & Customs (HMRC) has admitted it does not hold data on the number of people that have been wrongfully taxed on their death benefits.

Since 2016, the taxman has been issuing P6 tax coding notices in error for death benefit payments that are entirely non-taxable.

HMRC has said in consecutive newsletters that it is working to solve the problem, and has issued guidance requesting pension administrators to contact the taxman in these cases.

However, a freedom of information (FOI) request submitted by Royal London and seen by FTAdviser revealed that HMRC does not have accessible data on the number of people affected by this error.

The FOI stated the information is "not held in a centrally searchable/retrievable format".

HMRC’s systems hold information where a taxable or non-taxable death benefit for a beneficiary has been reported, it said.

But to provide information on the cases where tax was wrongly sought, the taxman would have to manually filter the death benefits data to identify non-taxable payments.

"Once filtered, an IT scan would be required to identify individuals where a P6 was issued. The individual’s circumstances would then have to be manually reviewed to determine if the P6 was issued correctly or not," it said.

The taxman added it could not produce the information at this stage as it would exceed the workload limited under FOI rules.

Sir Steve Webb, director of policy at Royal London and former pensions minister, said it was "shocking" to hear HMRC admit that people have been wrongly taxed without any clear idea of how many people were affected.

He said: "It doesn’t generate confidence in the accuracy of the tax system when HMRC can tell you they are getting something wrong but can’t say if this is a small problem or one which affects thousands of people."

Jessica List, pension technical manager at Curtis Banks, agreed it was disappointing that HMRC was not doing more about this matter. This was "not only because it’s an error of theirs which has been ongoing for nearly two-and-a-half years, but also because of who it affects".

She said: "The last thing beneficiaries need after losing someone is problems with tax which are no fault of their own."

An HMRC spokesperson said: "HMRC has issued guidance to pension scheme administrators advising them that if they receive a P6 coding notice from HMRC showing an amount that they have paid which is not taxable, not to operate the code but to contact HMRC.

"HMRC will then issue a revised P6 to be operated against any future payments made by the scheme."

FTAdviser reported earlier this month that the taxman is also unable to tell how much tax it collects from people breaching various annual allowances.

Alistair Cunningham, financial planning director at Wingate Financial Planning, said: "I would hope that an administrator would have an awareness of an individual’s tax situation to apply the right code, and where they are not they can liaise with the personal representatives or HMRC as appropriate."