Budget 2017: HMRC to take extra tax from pay packet

Officials will be able to raid people’s salaries for unpaid tax under new rules buried in the Budget.

HM Revenue and Customs will be given unprecedented powers to take extra tax from someone’s pay packet the moment it believes they aren’t paying enough.

Critics warned that the scheme could plunge thousands of people into tax chaos if errors are made, leaving them unable to budget from one month to the next as their salaries fluctuate wildly. 

Currently about 6 million people a year are affected by errors in their tax codes, resulting in some paying too much tax and some paying too little.

HM Revenue and Customs will be able to take extra tax from pay packets as soon as 100 Parliament Street believes someone is underpaying

Under current rules, if the taxman finds out people have underpaid, it must wait until the following year to recoup the money. It typically does this by changing the person’s tax code.

But in its Budget documents, the Treasury said HMRC will use new technology to collect the tax much more quickly.

Under rules which come into effect in April 2019, HMRC will be given enhanced powers to adjust people’s tax code immediately, instead of waiting until the end of the year. That means they could see a larger amount of tax deducted from the following month’s pay packet.

Those most likely to be affected will be people who have new jobs, have fluctuating income or have expenses or benefits such as a company car. 

HMRC can spot underpayments of tax more easily than in the past because its latest computer software shows in ‘real time’ how much workers earn on the Pay As You Earn (PAYE) tax system.

Experts said the plans, which are expected to bring £125 million extra tax over four years, were dangerous given HMRC’s track record of making errors.

Gary Gardner, tax partner at Blick Rothenberg, said: ‘We know that with HMRC, mistakes are made and the incorrect code is often allocated. These policies can often be a one-way street. 

‘I hope that if officials are able to quickly take from employees they will return the favour. If their calculations cause someone to overpay, they should just as quickly put that right.’

In its Budget documents, the Treasury said HMRC will use new technology to collect the tax much more quickly

In its Budget documents, the Treasury said HMRC will use new technology to collect the tax much more quickly

Mark Perry, senior tax manager at Moore Stephens, added: ‘This is a very powerful new weapon for HMRC to immediately grab unpaid tax from individuals, but if errors are made, they will be very costly for taxpayers.

‘There’s a real risk that unlucky taxpayers won’t find out about HMRC’s mistakes until their pay is short, or they won’t notice at all. They will likely face an uphill struggle to get that money back.’

HMRC said: ‘This measure is about exploiting the potential of new technology to make debt recovery more efficient for the taxpayer and for HMRC.’

Inheritance tax take to rocket 

George Osborne slashed the number of people paying the 40 per cent tax

George Osborne slashed the number of people paying the 40 per cent tax

Inheritance tax revenues are expected to soar by a third by 2023.

The levy brought in £4.8billion during the tax year to April, according to the Treasury’s Red Book – its annual financial forecast.

It is set to rise 35 per cent to £6.5billion by April 2023, thanks largely to house price rises.

This comes despite reforms by former chancellor George Osborne to slash the number of people who pay the 40 per cent tax on an estate by raising the threshold from £325,000 for a single person (or £650,000 for a couple) in April this year to £500,000 (£1million) by April 2020.

John O’Connell, of the TaxPayers’ Alliance, said the tax should be scrapped, adding: ‘It’s deeply immoral for the taxman to take such a big chunk from grieving families, especially after the deceased has paid taxes all their lives.’

Revenues from stamp duty on the sale of properties are also set to soar from £11.9billion in April this year to £15.8billion in April 2023 – an increase of 33 per cent. 

Spending and growth improve

A spending rebound has helped the UK economy pick up momentum in this year's third quarter

A spending rebound has helped the UK economy pick up momentum in this year’s third quarter

A rebound in household spending and improved business investment helped the UK economy pick up pace in the third quarter of this year.

Growth rose to 0.4 per cent in the three months to September 30, up from 0.3 per cent in each of the previous two quarters.

Spending by consumers rose 0.6 per cent in the latest period – up from 0.2 per cent – in a sign shoppers are riding out the pay squeeze triggered by higher inflation. 

Business investment ticked up 0.2 per cent in the third quarter, climbing to £45.8billion.

The Office for National Statistics figures came as a separate study showed a rebound in retail sales. Around 39 per cent of shopping firms said sales have been higher this November than in the same month last year, while just 13 per cent said they were down. 

Retailers expect further improvement next month, according to the CBI. However, selling prices increased at their fastest rate in more than 26 years – suggesting pressure from inflation remains strong.

 

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