Pensioner tax warning as HMRC strains up ‘formidable powers to seize possessions’

If you’re a pensioner and don’t think you earn enough to pay income tax, make doubly sure that’s still true. In 2010, when the Tories came to power, around 4.5 million retirees paid income tax. Today, nine million will.

Incredibly, an extra 650,000 will start paying tax this year, thanks to Rishi Sunak and Jeremy Hunt‘s decision to freeze income tax thresholds until 2028.

The full new state pension pays £11,502 a year. Pensioners who get the maximum amount only need to earn another £1,068 to breach the frozen £12,570 personal allowance and pay income tax.

As the state pension rises each year in line with the triple lock, more and more will get pushed into paying tax.

A big concern is that many will not realise until too late. As I’ve explained before, HM Revenue & Customs does not tax the state pension itself.

Instead, it takes the money from other sources of income, by directly taxing pension withdrawals and annuity payments, or income from employment via PAYE.

Many pensioners have already contacted us to express their shock at receiving less income than they expected. That’s as a result of the taxman is taking an even bigger share.

However, not all tax is routinely deducted on this manner. Pensioners with self-employed earnings above £1,000, rental property revenue or revenue from non-Isa financial savings and investments might must declare it themselves by finishing a self-assessment tax return.

Some might by no means have performed this and have no idea what they need to do. That’s when the difficulty actually begins.

Anyone who misses the annual tax deadline on January 31 faces an automated £100 late cost penalty, however that’s solely the beginning.

This escalates to £10 a day after three months. Then after six months it will increase to 5 p.c of the tax owed or £300, whichever is increased.

This is repeated if the tax nonetheless hasn’t been paid after 12 months.

Incredibly, these penalties apply even when you don’t owe tax within the first place.

Whatever you do, don’t stick your head within the sand, says Stephen Lowe, director on the retirement specialist Just Group. “HMRC has formidable powers to recover tax owed, levy penalties for unpaid tax, and charge late payment on interest.”

That’s solely the beginning.

Lowe warned: “In extreme cases, HMRC can seize possessions, take money from bank accounts, make you bankrupt, or take court action for tax evasion that could result in imprisonment.”

That might sound excessive and naturally most individuals by no means run into that type of bother, however he added: “HMRC is an organisation to be respected. Taxpayers can’t expect any special treatment just because they are pensioners.”

HMRC is difficult but in addition honest, he mentioned. “Where too much tax has been taken, refunds can be claimed, which makes it important to check the figures including any P60 forms issued by pension providers and employers.”

Taxpayers can even use appeals procedures which might take note of causes comparable to sick well being or bereavement as causes for paying late. “Most important, if you find yourself in tax trouble, alert HMRC.”

You may additionally be capable of get assist from different sources. “Those on low incomes can get help from charities such as TaxAid and Tax Help for Older People.”

The good news is that pensioners whose revenue is principally from state pension, non-public pensions and financial savings received’t need to submit a self-assessment type.

“Many will fall under the simple assessment system where HMRC sends a calculation for tax owed each year (PA302) which is also available to view online.”

You must verify the figures are right, or attraction inside 60 days, and pay the tax due by January 31 following the tip of the tax yr.

HMRC can cost curiosity on underpaid tax beneath easy evaluation, however there aren’t any fines for late cost or for failing to maintain data.

Unfortunately, you possibly can’t register for easy evaluation. The choice is right down to HMRC. It’s the one in cost right here. It at all times is.