Winter fuel payment changes to unleash ‘chaos' on HMRC

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Rachel Reeves's winter fuel payment about-turn could unleash 'chaos' on pensioners and the tax office, experts have warned.
Under the new rules, the majority of pensioners will receive the winter fuel allowance but those earning more than £35,000 will have their payment clawed back through the tax system.
Experts have said the policy, which will save an estimated £450m a year and cost around £1.25bn, could have unintended consequences such as:
The £450m in savings could be wiped out due to the costs of administering the complex system.
HMRC could claw back 'the wrong amounts' from pensioners due to out-of-date records.
Customer service could suffer and tax dodgers could get off scot-free as HMRC's staff are moved away from regular work.
Rachel Vahey, of stockbroker AJ Bell, said claiming back the payment from 25pc of pensioners was 'the most convoluted and difficult' route the Government could have chosen.
She added: 'Given the chaos it could cause and the relatively tiny taxpayer savings on offer, it may have made sense for the Government to take the political embarrassment of a U-turn on the chin and make the payment to all pensioners.'
Around two million pensioners earn more than £35,000 and will have the winter fuel payment claimed back through the tax system.
For pensioners who file a tax return, this will be done via self-assessment. However, most pensioners are taxed through PAYE, which means the payment will be recovered through their tax code.
Robert Salter, of accountancy firm Blick Rothenberg, said this could result in pensioners losing the winter fuel payment unfairly due to HMRC's 'out-of-date' records.
'Given that many people subject to the winter fuel payment won't be doing tax returns, there is a real risk that HMRC might be claiming back the wrong amounts – at least in some cases – as they have used the wrong underlying data,' he said.
Former pensions minister Ros Altmann said she was also concerned about pensioners getting hit with incorrect bills relating to the winter fuel allowance.
'HMRC often makes mistakes and they warn that everyone needs to check the figures carefully to ensure the tax codes are correct.
'For many of the oldest pensioners, this is likely to be a massive challenge and, especially for those who are not digitally enabled, it could cause significant worry.'
The Government's previous experience with means-testing does not bode well for the success of the winter fuel allowance system.
Under the high-income child benefit system, which is also means-tested, the benefit is partially withdrawn once a parent earns more than £60,000.
This means the parent must either opt out of receiving child benefit or file a tax return and pay it back.
Over the years, many parents have been hit with unexpected tax bills because they do not know the rules or do not realise they have earned over the threshold.
This has led to HMRC spending valuable time and resources policing the complicated system in order to claw back a relatively small amount of tax.
Jon Greer, of wealth manager Quilter, said: 'The Government should learn lessons from the child benefit system and ensure it doesn't bake in unfairness from the outset. Getting that balance right is critical to avoiding the kind of unintended consequences that have plagued other means-tested benefits.'
The Department for Work and Pensions has said it will set up a simple system so pensioners over the threshold can opt out of winter fuel payments.
But even once this is up and running, there will be some pensioners who do not opt out because they do not realise they have earned more than £35,000 in one year.
HMRC said taxpayers could check taxable income quickly and easily in the app or online via their personal tax account.
Chancellor Rachel Reeves said the decision to reinstate winter fuel payments meant 'no pensioner on a lower income will miss out'.
The about-turn comes as Sir Keir Starmer tries to shore up support from MPs and the public following losses to Reform at the local elections last month.
A spokesman for HMRC said: 'No one will need to file a tax return just to pay back a winter fuel payment, and the vast majority will have the charge collected automatically through their tax code.
'HMRC has previous experience of introducing new processes at pace and doing so very successfully.'
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