31 January 2018

New statistics show HMRC is 'out of control' as "over-taxation" reaches almost half a billion pounds - Royal London

3 min read

 
Steve Webb - Director of Policy

Steve Webb

Director of Policy, Royal London

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Figures published this morning by HMRC on tax refunds show that the organisation is ‘out of control’ when it comes to over-taxing people and then expecting them to claim back refunds, according to mutual insurer Royal London. New analysis by Royal London shows that, since April 2015, HMRC has had to hand back just under half a billion pounds to individual taxpayers who have been over-taxed.

There are currently two areas of the tax system where HMRC is now systematically collecting huge sums in tax which it then has to hand back to taxpayers. These are:

- Income tax on pension withdrawals – savers using the new ‘pension freedoms’ are taxed on an ‘emergency tax’ basis when they take money out of their pensions and then have to fill in one of three different forms to claim the money back; since the system started in April 2015, the total amount refunded to taxpayers has been £262 million;

- Extra stamp duty on ‘second homes’ which turn out not to be second homes – where someone completes the purchase of a house before they have sold their existing house, they have to pay an extra 3% stamp duty on the transaction; as long as they eventually sell the first house they then claim a refund on a tax really designed to hit ‘buy-to-let’ landlords, not people moving house; today’s figures show that the total amount which HMRC has had to refund since April 2016 is £231 million

This means that since April 2015, taxpayers have had to claim back £493 million from HMRC.

Commenting, Steve Webb, Director of Policy at Royal London said:

"HMRC is clearly out of control. It operates a system of ‘tax first, ask questions later’, presumably so that the Government can enjoy some extra interest until the money is claimed back. It is time to speak up for ordinary citizens who are forced to pay excessive amounts of tax and then go through the hassle of claiming it back. This is a system built around the needs of the Treasury and the bureaucracy, not one which puts people first."

Helen Morrissey, Personal Finance Specialist at Royal London said:

"Taxes like the second home stamp duty were designed to clamp down on buy-to-let landlords, not people whose house sale took longer than they expected. Moving house is already a stressful enough activity without having to pay thousands in extra tax to HMRC and then have to claim it back. And these figures do not even include the people who are over-taxed without realising it and never claim a refund."

Royal London is recommending that the system be reformed so that:

- One-off pension withdrawals are simply taxed at the standard rate of income tax, with any outstanding balance collected by end year adjustments;

- Second Home stamp duty is not collected for routine house sale and purchases except in cases where there is no linked sale and the intention is clearly to become a second home owner

- ENDS -

 

For further information please contact:

Steve Webb, Director of Policy

Helen Morrissey, Personal Finance Specialist