Blimey, the tax office really has got itself into a terrible mess over George Osborne’s savings revolution.
The changes don’t even kick in until next month, but already revenue collectors are making the sort of errors that cause honest taxpayers years of headaches.
The Chancellor’s well-intended shake-up is showing all the hallmarks of a major shambles.
His seismic changes mean that savers will no longer have basic-rate, 20 per cent tax deducted before they are paid interest.
Blunder: The Chancellor’s well-intended savings shake-up is showing all the hallmarks of a major shambles
Instead, HM Revenue & Customs (HMRC) will deduct anything you owe — after the new £1,000 savings allowance (£500 for higher-rate taxpayers) — from your salary or pension.
It will do this by adjusting your tax code, which at first glance does seem more sensible than asking people to fill out self-assessment forms.
To deduct the right amount of tax, however, HMRC must find out how much interest you are earning — and that is far easier said than done.
First, HMRC told us its master plan was simply to ask banks and building societies how much interest you were paid last year. As we reveal today, that is a deeply flawed policy.
Officials will get out-of-date information on hundreds of thousands of people whose returns have fallen. Any number of people could be left out of pocket.
Now, HMRC is saying it will use any old information it can get its hands on. That could mean using figures you provided over the phone years ago.
Again, HMRC is going to get useless information and hit savers with tax errors that take an age to correct.
The galling truth is that the tax office is making it up as it goes along. Each week we get a different explanation of how it will work out your tax bill — all of them rotten.
Bungling officials could have solved the problem very easily by taxing savers in arrears.
HMRC should allow everyone tax-free interest until the end of each year, then work out how much they earned and deduct any dues from the next year’s salary or pension.
If you listen to the Chancellor give his Budget speech at 12.30pm today, it will be clear why HMRC hasn’t done this.
Mr Osborne is strapped for cash. Delaying tax collection on savings for 12 months would create a black hole in his finances that he can ill afford.
Gordon Brown was a great tax fiddler, and Mr Osborne has fallen for the same temptation with savings interest.
But the pair’s tinkering has caused our tax code to balloon to ten million words. The text is 21,602 pages long, up from 17,795 in 2010.
In 1965, it comprised fewer than 1,000 pages.
Mr Osborne could save himself and HMRC a lot of bother. Ultimately, he should concede that HMRC has no business raiding the interest on our savings at all, as we have already paid tax once on that pot of money.
The best move the Chancellor could make in today’s Budget would be to scrap tax on savings altogether.
A fairer fight
When MPs had their gold-plated pensions tapered last May, almost half were spared the changes.
It was decided they were too close to retirement, with less than ten years to go, to bear a cut to the payouts they would get in old age — proving once again that it’s one rule for them and another for the rest of us.
At short notice, around 500,000 women born in the Fifties have been told to tear up their plans to collect a state pension at the age of 60 and instead wait until they reach 66.
A raucous campaign to slow down the rise is being led by the Women Against State Pension Inequality (Waspi) group.
They have had little success because reversing the changes could cost the Treasury up to £30 billion.
Its supporters should rally behind a proposal from the Work and Pensions select committee, which says that workers should be able to take their state pension early if they accept a lower weekly amount.
The devil will be in the detail of how much of the new £155 standard payout they will give up, but this lifeline is worth backing because it is affordable and, therefore, realistic .
Though I would still rather see MPs chip away at their own bloated pensions before attacking ours.
Well done, L&G
Finally, Legal & General has admitted its shoddy treatment of a dying customer trying to claim on her life insurance policy was out of line.
Last month, we told how the giant insurer refused to pay £130,000 to Violeta Beaver after her consultant said she had six months to live.
L&G’s medical experts — who had never met Violeta — claimed she might live longer.
When Money Mail got involved, the firm grudgingly paid up. Now, L&G has found the heart to send a letter to Violeta’s husband, Perry, to apologise for the ‘distressing and traumatic experience’.
It has offered £457 to cover the interest the couple lost due to the delays and £2,000 to compensate for the emotional distress.
Violeta and Perry are deciding whether to spend the money on return flights from the Philippines to the UK for Violeta’s brothers to visit before she dies, a short break to Ireland if Violeta can travel or a donation to charity.
Well done, L&G. That was exactly the right thing to do . . . which makes it all the more frustrating that it took Money Mail’s intervention for its bosses to see sense.