TaxNov 1 2018

Taxman finally corrects death benefits error

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Taxman finally corrects death benefits error

HM Revenue & Customs (HMRC) took two years to correct an error which meant that people were being 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 was working to solve the problem, and has issued guidance requesting pension administrators to contact the taxman in these cases.

In its pension schemes newsletter published yesterday (October 31), the taxman said its real time information (RTI) online service was updated on October 17, which prevents the coding notices to be wrongfully issued.

"We are sorry for the time it's taken to resolve this," it said.

Pension administrators can now resume reporting non-taxable pension death benefit payments through RTI for 2018 to 2019.

FTAdviser reported in September that HMRC admitted it does not hold data on the number of people that have been wrongfully taxed on their death benefits.

A freedom of information request submitted by Royal London at the time showed that the taxman doesn't hold the information in "a centrally searchable/retrievable format".

Sir Steve Webb, director of policy at the mutual insurer, argued that it is good news that this error has finally been fixed but it was allowed to continue for far too long. 

He said: "We will probably never know how many people were wrongly taxed at a very difficult time in their lives. 

"When problems like this crop up, HMRC should devote more resources to getting them fixed as a matter of priority."

maria.espadinha@ft.com