Volunteering to demystify the tax system for pensioners has been a good experience for one accountant.
Mike Holland, a chartered accountant and chartered tax adviser who lives in Kinross-shire, Scotland, used to be a corporate tax manager for a US multinational corporation. He worked on complicated, cross-border tax matters, involving millions of dollars.
Now he advises on tax matters where less than £100 can be at stake, but the work is just as satisfying.
After he retired, Holland had a problem with his tax-coding notices. “HMRC didn’t cover itself with glory in the transition between my work and retirement,” he says.
He sorted the problem but the experience helped him imagine how stressful tax disputes can be for pensioners on a low to modest income and who have little or no knowledge of the tax system, nor can they afford professional help.
Holland knew about a charity called Tax Help for Older People, a UK charity established by the Chartered Institute of Taxation, that provides free and independent advice and help for older people on income of less than £20,000 a year.
Free tax advice
Most of its volunteers are currently tax professionals or retired tax professionals, including retired HM Revenue and Customs staff (HMRC).
“If I didn’t have knowledge of tax I’d have been totally at sea [when dealing with HMRC over my tax code after I retired],” Holland says. “I thought why not try to help someone in a similar situation to myself.”
He called Tax Help for Older People and after an interview he started to do voluntary work in his local area. The work often involves meeting the pensioner who needs help with their tax. The meeting usually takes place at the offices of a local community organisation or, for the less mobile client, at their home.
Typical tax problems include questions about coding notices for Pay As You Earn (PAYE), over-payments and under-payments of tax and help with filling in tax returns.
“If you have been working as an employee all your life, you get used to your employer sorting your tax affairs for you by deducting your tax bill from your salary,” Holland says. “If you have a tax problem you can ask your HR or payroll department for advice.”
Many people Holland sees are stressed about tax. “Some people don’t feel confident about calling HMRC and [ignore the problem].”
Submitting self-assessment tax returns can also be stressful if you’re not familiar with the tax system.
Clients sometimes presume that because they don’t have a big income they don’t need to fill out a tax return. But as Holland says, if someone has a state pension of, say £12,000 that exceeds the personal allowance [for 2016-2017] of £11,000, and no other income from which PAYE can be deducted, they’ll need to submit a tax return and pay tax on the pension.
One common problem is when people ignore demands for self-assessment tax returns. They get automatic penalties. One of Holland’s clients had £500 in penalties for not filing a self-assessment return. “If you’re on a low income that is a tremendous amount of money. The person was very stressed. I eventually got the penalty cancelled.”
Tax problems can affect people’s physical and mental health. “One of my clients had to have medication because of the stress from a tax problem,” Holland says. “But it depends on the individual. Some people sail through [tax matters], some don’t.”
Holland says that his voluntary work helps people understand what the problem is and how to fix it. “I help explain things to clients. Tax Help’s relationship with HMRC is very good. We have a dedicated line to a specialist department at HMRC that we can use with the client’s authority. The staff know a lot about the type of problems encountered by our client base and can access all taxpayers’ records. However, our relationship with HMRC does not prevent us challenging them if it is in our client’s best interest. The client always comes first.”
He enjoys helping clients and getting to know them. “You see people in a very stressed condition and I’ll work them sometimes over two or three interviews. They understand what’s happening and it really helps their lives.”
“In my experience, most of the time the information HMRC send to the charity’s clients is correct. It’s just that clients often struggle to understand it. Or why he/she had under-paid tax, and don’t realise they can sometimes pay tax owed in instalments, rather than all at once.”
His voluntary work is a contrast to the large tax bills he dealt with when he worked in corporate tax. “Now, you’re talking to people in real-life to whom £50 or £100 is a lot of money”.
HMRC plans to make the tax system digital by 2020 in a project called “Making Tax Digital”. Will this mean some older people will need less or more help with their tax affairs?
“A lot of people [I deal with] just don’t have computers,” Holland says. “There seems to be a broad assumption that everyone has computer skills but not everyone does, even younger people. At least ninety per cent of my clients don’t have computer skills.”
HMRC already has a team to help people who need extra support but Holland isn’t sure whether there will be enough resources to help everyone who needs it.
That may mean that Holland and tax experts helping the charity are going to be busier than ever. More volunteers would be welcome.
Asset rich but still in need of advice
Although many pensioners are “asset rich”, having paid off the mortgages on their homes, their household income is on average lower than the nation as whole as well as more complicated, says the Low Incomes Tax Reform Group (LITG), which that lobbies the government and HMRC to simplify tax rules and services for those on low income.
Multiple sources of income (the state pension, other benefits, occupational pensions, personal pensions, income from savings and investments and ongoing earnings) mean more complicated interactions with the HMRC.
Nick Huber is a freelance journalist and has written for Accounting Technician magazine, The Guardian and BBC.