PER­SONAL AC­COUNT

The Daily Telegraph - Your Money - - FRONT PAGE - Marc Sid­well

Savers de­serve bet­ter than the cur­rent im­pen­e­tra­ble tan­gle of tax rules

It’s of­fi­cial: the tax rules on sav­ings and in­vest­ments are now so com­pli­cated that even the tax­man’s own com­put­ers can’t get them right. A new pa­per from the Of­fice of Tax Sim­pli­fi­ca­tion (OTS) re­veals that cal­cu­lat­ing the tax on our sav­ings is one job the ro­bots aren’t com­ing for quite yet: it’s just too con­vo­luted. Ac­cord­ing to the re­port: “It is prov­ing to be very dif­fi­cult to cre­ate an al­go­rithm that cal­cu­lates the tax cor­rectly in all cir­cum­stances.”

To take one small ex­am­ple of the com­plex­ity, those who make pen­sion lump sum with­drawals are reg­u­larly charged too much tax, thanks to the ap­pli­ca­tion of emer­gency tax codes.

These emer­gency codes treat the one-off with­drawal as the first in­stal­ment of a mas­sive reg­u­lar in­come. As a re­sult, too much tax gets carved off.

The OTS pro­vides an ex­am­ple show­ing how a lump sum with­drawn to pay for a car could be un­ex­pect­edly slashed to a level where it was no longer enough to cover the pur­chase.

This ex­cess tax does get paid back to you – even­tu­ally. The pa­per re­veals that since the pen­sion free­doms were in­tro­duced in April 2015, the tax­man has had to pay back £37m on pen­sion lump sum with­drawals. HMRC claims that re­pay­ment takes just seven days if you sub­mit a claim, but those with ex­pe­ri­ence say de­lays can last up to six weeks.

Ab­surdly, even though the per­sonal sav­ings al­lowance (PSA) means that 95pc of Bri­tain’s savers do not have to pay tax on the money they put aside, the sys­tem is now so com­plex and its com­mu­ni­ca­tion so poor that many “worry about the tax treat­ment of their sav­ings in­come even when they do not in fact have any­thing fur­ther to pay”.

And the greater pub­lic aware­ness of Isas now means that many of those who choose to save cash in them may be los­ing out, as they don’t know that the PSA could pro­tect their in­ter­est from tax out­side an Isa, where bet­ter in­ter­est rates are avail­able.

Part of the prob­lem is our woe­ful lev­els of fi­nan­cial lit­er­acy. As a na­tion we score be­low the OECD av­er­age. And while any­one read­ing this is surely on the up­per end of the fi­nan­cial lit­er­acy scale, the OTS bleakly ob­serves that even Bri­tish cit­i­zens who self-as­sessed their knowl­edge as high were only av­er­age when com­pared with peo­ple from more fi­nan­cially lit­er­ate coun­tries on ob­jec­tive tests.

But we need a tax sys­tem for the coun­try we have, not one for an ideal pop­u­la­tion of ac­count­ing wizards. The OTS rightly crit­i­cises HMRC for “un­clear or in­com­plete” com­mu­ni­ca­tion and urges it to im­prove its guid­ance and make it eas­ier to un­der­stand.

Helping tax­pay­ers to nav­i­gate the tan­gle of cur­rent tax rules is not enough, though, if only be­cause, given the level of fi­nan­cial un­der­stand­ing across the coun­try, “even com­par­a­tively clear HMRC guid­ance in this area will be dif­fi­cult

It’s not just the tax­man who needs to work on his plain English skills. For many cus­tomers, too much of the com­mu­ni­ca­tion they get from pen­sion and in­vest­ment firms is hard to fol­low.

That’s one of the mo­ti­va­tions be­hind Tele­graph Money’s de­ci­sion to join with Bor­ing Money and launch the Con­sumer In­vest­ment Awards.

We wanted to know who of­fered good cus­tomer ser­vice and value for money, who com­mu­ni­cated well, which on­line ser­vices were best and which new­com­ers were mak­ing an im­pact.

So we asked you, the real ex­perts, to share your ex­pe­ri­ence with us.

Thank you to the thou­sands of readers who voted, and helped give the cus­tomer a voice.

We will present your feed­back to the in­dus­try, at an event on Wed­nes­day, with a full re­port to fol­low in next week’s sec­tion.

Bri­tain has a lot of home­work to do to im­prove its fi­nan­cial lit­er­acy

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