§ Mr. William Clark
asked the Chancellor of the Exchequer whether he will review the income limits which govern the Inland Revenue's practice for remitting arrears of tax which have arisen through official error.
§ Mr. Peter Rees
Yes. The practice adopted by the Inland Revenue of remitting arrears of tax which have arisen through official error is set out in a White Paper of July 1971—Cmnd. 4729. As a result of revisions in 1974 and 1977 of the income limits which were fixed at that time, the current practice is that where the taxpayer's gross income is less than £3,000 a year no attempt is made to recover the arrear of tax. Where it is above that figure but is less than £6,000, only one half of the arrear is collected unless there is investment income of £500 or more, when the whole of the arrear is normally collected.
I have decided that the income limits governing the practice should be raised and extra steps introduced into the graduation. With these alterations the practice will be that where the taxpayer's gross income is less than £4,000 no attempt will be made to recover the arrear of tax. Where it is £4,000 or more but less than £6,000 only one quarter of the arrear will be collected; if £6,000 or more but less than £8,000, one half of the arrear will be collected; and if £8,000 or more but less than £10,000, three quarters of the arrear will be collected; where the taxpayer's gross income is £10,000 or more there will normally be no remission. It has also been decided to make the practice rather more generous by dropping the investment income test.181W
The new limits will apply to any case of official error under the White Paper where the Inland Revenue's view as to the application of its provisions is conveyed to the taxpayer or to his agent on or after today.
In addition to this improvement in the existing practice, consideration is being given to the scope for further changes in the basis of the treatment of tax arrears which are attributable to departmental mistake.