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The Government has today agreed to waive a tax liability that would have forced thousands of low-income pensioners to pay back a debt they knew nothing about, following a sustained campaign by a coalition of Age Concern, Citizens Advice, Help the Aged, Low Incomes Tax Reform Group (LITRG) and TaxHelp for Older People. This decision will save thousands of pensioners from an unexpected tax bill of up to £300 each.

HMRC administrative errors had resulted in up to 420,000 people with small pensions being under-taxed – many of them likely to be careful budgeters who pride themselves on staying 'out of the red'. HMRC had intended to contact the pensioners later this year in an attempt to claw back the debt for the tax year 2007/08. The issue was raised by MPs on the Public Accounts Committee earlier this year and was followed up recently by the Treasury Select Committee¹, which is due to question the Chancellor on it next week.

The coalition argued that it was the responsibility of HMRC to administer the system correctly and that pensioners should not pay the price for their failure to do this. Following discussions with Treasury minister Jane Kennedy and HMRC, the Government has agreed to waive the liability for 2007/08. The coalition is now pressing HMRC to contact all those affected as a matter of urgency to alert them to their tax liability for the current financial year. 

Patrick South, Age Concern’s head of public affairs, said: "This is an issue of fairness and we are delighted that the Government has listened to the concerns of low income pensioners. At a time when many older people are struggling to cope with steep hikes in food and energy bills, news of an unexpected tax liability would have caused a huge amount of worry and tipped many into debt. HMRC must now ensure that people are contacted urgently about their liability for the current tax year.”

Mervyn Kohler, Special Adviser at Help the Aged, said: "This is a welcome decision which will be greeted with some relief for those pensioners who faced potential back-tax bills, which, at a time of real financial difficulty for many older people, would have been a source of real anxiety.  The important principle here is that people should not have to pay tax for which they did not know they were liable.  Indeed, in this case it was HMRC's own fault that these people became liable in the first place."

John Andrews, Chairman of the Low Incomes Tax Reform Group, said: “Although it has taken a year of persuasion, I’m very glad that commonsense prevailed. It was clear that pursuit of these debts was going to cause great distress. Not only that, in the end, the costs of collection could easily have outweighed the amounts gathered.”

Paddy Millard, Chief Executive of TaxHelp for Older People said: “We see the problems that pensioners face dealing with the complexity of the tax system every day of the week. It is a great relief that this threat has been removed. We must now hope that HMRC can get in touch with all these pensioners in the next few weeks, so that the debt for the current year is kept to reasonable proportions.”

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Notes to editors
¹ The Treasury Select Committee evidence session took place on Wednesday 21 May 2008

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