The Office of Tax Simplification (OTS) has made a range of recommendations in a bid to make tax simpler for Britain's pensioners.
The independent body, set up by the coalition, looked at the elements of tax that cause the most complications for pensioners, including tax on savings and the married couple's allowance.
It said the 10% tax rate on some savings income should be scrapped with all such income instead taxed at 20%. The money saved could be used to increase ISA limits, it said.
The OTS also recommended simplifying the married couple's allowance to remove the current income abatement system and replace it with a flat-rate payment for those still eligible.
Finally, it suggested the blind person's allowance (BPA) should be revised, as it said the payment is currently poorly-targeted; those with no income tax liability do not benefit.
Ideally, the OTS said the BPA should be revised to provide direct grants and support for all those registered blind and that, in any event, it needs to be simpler to claim.
The OTS also recommended a number of administrative changes:
Better tax information for pensioners
The OTS recommended that the Department for Work and Pensions issue an annual statement setting out the amount of taxable income received from the state pension and social security benefits in the tax year. This form - a 'DWP60' - would parallel the P60 that employers and other pension providers have to give recipients and would ensure pensioners know what taxable income they are receiving.
Simplify tax coding notice process
To address the confusion faced by many when they receive multiple PAYE coding notices from HM Revenue and Customs (HMRC), the OTS recommends HMRC issues consolidated coding notices (‘form P2C') setting out all of a pensioner's tax codes and showing how the personal allowance is used.
Amongst several admin improvements, OTS recommends banks and building societies ask annually if the tax status of a savings account is correct, ensure account holders have correct guidance on tax on interest, and that HMRC creates an online portal to submit form R40 which allows pensioners to claim back the tax they may have paid incorrectly on their savings.
This final report with recommendations has been published on the website and has been put to the Chancellor of the Exchequer for consideration.
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