HM Revenue & Customs (HMRC) must be “rubbing their hands with glee”, suggested Royal London director of policy Steve Webb, following the publications of the latest tax refund figures.
The new HMRC pension schemes newsletter has revealed the amount of overpaid tax on pension withdrawals has surged in the last three months. More than 18,000 people have had to claim back tax they paid but did not actually owe.
The newsletter highlighted that, in the period from July to September 2018, the amount reclaimed was more than £37m, compared with £28m in the previous quarter. This took the total amount reclaimed in the last 12 months past the £100m mark.
Webb commented: “HMRC must be rubbing their hands with glee as taxpayers are forced to fork our millions of pounds in unneccessary tax on pension withdrawals, all for the administrative convenience of the government.”
Webb also argued the new figures showed what he called HMRC’s “overtaxing spree” was moving up a gear. “There must be a better way than the current system where taxpayers have to fill in one of three forms to claim back the tax they should never have had to pay in the first place,” he added.
‘Problem not going away’
According to AJ Bell senior analyst Tom Selby, meanwhile, a staggering” £372m has now been reclaimed by savers overtaxed on their withdrawals since the pension freedoms launched in 2015. “While it is good news HMRC is processing record numbers of claims, it also demonstrates this problem is not going away,” he continued.
“In reality the vast majority of people who are overtaxed are not filling out the official reclaim forms, meaning the amount of emergency tax paid by savers will be much higher than this official figure.”
An HMRC spokesperson said: “We have reviewed the PAYE process for lump sums taken under the pension flexibility rules where the emergency tax code is applied.
“We concluded that any changes would not significantly improve the tax position for the majority of recipients. The existing treatment remains the most effective method in these cases.”