In the new report, the OTS cover a range of contentious issues and call for change. These include:
• The complexities of pension tax limits, notably the ‘tapered annual allowance’, and the combined effects of annual and lifetime limits; the OTS says that these allowances should be ‘reviewed’, to “taking account of the distortions they sometimes produce”.
• The way in which lower paid workers can miss out on pension tax relief altogether depending on whether their employer has chosen a scheme that uses ‘relief at source’ or the ‘net pay arrangement’; the OTS say “…the government should consider the potential for removing or reducing this difference in outcomes, but without making it more complex for those affected”.
• The problems caused by the ‘High Income Child Benefit Charge’ which has led to some families declining to claim Child Benefit, not realising that they are likely to miss out on valuable ‘credits’ towards their state pension; the OTS recommends “..that the government reviews the administrative arrangements involved to improve the situation – and also looks at the position of those who have lost out since 2013.”
Unfortunately, the OTS can simply request review and reform but it is up to the Government and HMRC whether they take any action. Recently, the OTS recommended that HMRC change the system of ‘emergency tax’ deductions when people make lump sum pension withdrawals under the ‘pension freedoms’ legislation, but HMRC simply replied that the current system did not need to be reformed.
Commenting, Steve Webb, Director of Policy at Royal London said: “This report by the highly respected and independent Office of Tax Simplification makes a great deal of sense. It has highlighted several areas where the tax system causes complexity and unfairness for ordinary taxpayers. Ideally, the Government would listen carefully to this report and make changes. But in the past, HMRC has treated OTS recommendations with contempt, ‘marking their own homework’ and deciding that nothing needs to change. I hope that this time the watchdog will have some teeth and the government will listen”.
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