HMRC accused of failing to tell taxpayers about key changes to savings taxes

Barely a week seems to pass without HM Revenue and Customs (HMRC) receiving criticism from some quarter or other. Whether all of the complaints are justified is open to debate. The most recent criticism comes courtesy of the House of Lords. A committee from the second chamber labelled HMRC’s overall communications strategy as muddled and inept.

So what’s the basis for this accusation? How has HMRC failed to communicate effectively? Well, the House of Lords Economic Affairs Committee says although ‘important and imminent’ changes that are about to be introduced to the way savings and dividends are taxed; HMRC has failed to adequately notify UK taxpayers about the changes. In fact it went so far as to say that the majority of taxpayers had no idea that any changes were on the cards at all. The Committee said the changes were complex, confusing and poorly communicated to taxpayers, and it labelled the tax authority’s overall communications strategy as “inadequate”.

So what exactly are these ‘imminent’ changes? Well, one of the main reforms on the horizon is the abolition of the automatic tax deduction by banks on interest earned on savings. Currently banks deduct tax from most interest earned. When the changes finally come into force, it will become the saver’s responsibility to notify the authority about any interest earned.

The Committee said not only were most taxpayers unaware of this change; they were also unaware about whether they would be required to submit a tax return to pay tax to HMRC on future interest earned. The Committee also re-enforced the more general concerns expressed by accountants about the overall complexity of the UK tax system, and the growing burden placed on individual taxpayers to keep up with HMRC compliance.

The Committee called for a more transparent communication strategy between HMRC and taxpayers, and said that the Government must do more to demonstrate how it is delivering a simpler, more efficient taxation system. A public awareness campaign led by HMRC in partnership with banks, building societies and other financial institutions is one of the ideas that has already been mooted

Speaking about the House of Lords Economic Affairs Committee’s findings, its chairman, Lord Hollick, said:

“Changes to how we are taxed can have a huge impact on financial planning, including savings and pension arrangements.”

“A great many savers will have no idea that from April they may for the first time have to check whether they need to report or pay tax on interest they have received, rather than have their bank deduct the tax they owe.”

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