HMRC is facing a difficult situation as a result of a “stealth raid” and impending charges on savings, which will drag millions of Britons further into the tax system this year. Jim Harra, the CEO of HMRC, has informed MPs that the tax authority does not have an exact count of how many individuals will have more complex tax arrangements. Additionally, Harra revealed that there will be no additional funding provided to HMRC to handle the increased workload. There are concerns that the tax system could experience a meltdown if officials are overwhelmed by calls from individuals facing higher tax bills.
According to estimates, there will be 1.2 million more taxpayers this year compared to 2022-23 due to Chancellor Jeremy Hunt’s decision to freeze tax allowances and thresholds. This freezing of tax allowances and thresholds has prompted fears of a tax system meltdown.
Many workers are at risk of being pushed into higher tax bands due to rising earnings, a phenomenon known as “fiscal drag.” Mr. Hunt has been accused of implementing “stealth taxes” by failing to increase allowances and thresholds in line with earnings growth caused by the cost-of-living crisis. Furthermore, individuals with savings are also facing increased tax charges for the first time in years. The Bank of England’s introduction of higher interest rates to combat the inflation crisis could push their earnings beyond the tax-free threshold. Prior to the cost-of-living crisis, the Bank of England had maintained record low interest rates, resulting in minimal earnings for savers.
In conclusion, HMRC is bracing itself for a challenging situation as millions of Britons are drawn deeper into the tax system due to a “stealth raid” and impending charges on savings. The tax authority lacks an exact count of individuals with more complex tax arrangements and will not receive additional funding to handle the increased workload. There are concerns about a potential tax system meltdown if officials are overwhelmed by calls from individuals facing higher tax bills. Chancellor Jeremy Hunt’s decision to freeze tax allowances and thresholds is expected to result in 1.2 million more taxpayers this year compared to the previous year. Additionally, workers face the risk of being pushed into higher tax bands due to rising earnings, and individuals with savings may face increased tax charges as a result of higher interest rates introduced by the Bank of England.Tory MP Harriett Baldwin, who chairs the House of Commons’ Treasury select committee, expressed her concerns about fiscal drag to the Financial Times. She stated that it is not only affecting savings but also freezing tax thresholds and allowances.
Recently, Mrs. Baldwin received a letter from HMRC boss Jim Harra, which was published by her committee. The letter revealed that HMRC is preparing for an increased workload.
In the letter, Mr. Harra informed Mrs. Baldwin that the Treasury plans to handle the additional costs resulting from the growing number of taxpayers by making efficiencies. This includes reducing customer contact demand and maximizing digital self-service.
Tory MP Harriett Baldwin, chair of the House of Commons’ Treasury select committee, expressed her concerns about fiscal drag, stating that it poses a nightmare scenario for HMRC.
The article also includes an image of Tory MP Harriett Baldwin, chair of the House of Commons’ Treasury select committee.
The article concludes with a factbox titled “SIMON LAMBERT: Stealth tax hits savings and investments.”The failure to raise tax thresholds in line with inflation or wages has been a long-standing trick employed by Jeremy Hunt and previous Tory Chancellors, according to Simon Lambert of This is Money. This not only affects income but also creates more confusion in Britain’s tax system. Mr. Harra, from HMRC, was unable to provide a specific number of people who will face more complex tax affairs in the coming years. He stated that most taxpayers dealing with complex tax affairs are likely already in the system. The increasing number of taxpayers poses a challenge for HMRC, as they do not have the resources to handle the growing contact. Savers are also impacted by tax regulations. Those earning up to £50,270 can earn £1,000 in interest on savings tax-free, while higher-rate taxpayers earning between £50,271 and £125,140 can earn £500 tax-free. Those earning over £125,140 do not receive a tax-free savings allowance. According to This is Money, savers could be taxed on just over £16,000 in NS&I’s 6.2% bonds. Laura Suter of AJ Bell described tax on savings as a lucrative source of revenue for the Treasury. Most taxpayers have their tax on savings interest automatically collected using their tax code, while HMRC directly contacts those who are not employed.Individuals who do not receive a pension or fail to complete a self-assessment tax return may be required to pay tax on their savings interest. According to an HMRC spokesperson, they plan to address the growing demand by promoting the use of their online services. These services are designed to provide quick and easy answers to queries, eliminating the need to wait on the phone or send written correspondence. The spokesperson also mentioned that this approach will allow their expert advisors to focus on assisting individuals with complex queries, those who are digitally excluded, and those who are particularly vulnerable.
