The pension problem.(Letters)

IT'S a mistake to believe a private pension and a state pension are both taxed at source. State pensions are paid gross - which is why so many pensioners who don't understand the tax system are complaining about being hit with unexpected tax bills.

With many pensioners receiving a state pension of more than [pounds sterling]11,000, they often go more than [pounds sterling]1,000 over the personal allowance for pensioners and are liable for tax at 20 per cent on this sum.

This could be rectified if all state pensions were taxed, giving the personal allowance for over-65s. Some people would be due a tax rebate but this number would be low and the majority would have paid the correct tax and not receive unexpected tax bills.

This would also assist the Revenue in its cash flow as it would receive relatively small weekly payments rather than large payments at the end of the tax year. As an accountant, I take issue with the way in which HMRC handles self-assessments. When the self-employed submit a tax return, they are obliged to make an advance payment of 50 per cent of the tax due in January, and another 50 per cent in July.

In theory this means that in January the following year they will have made substantial payments towards that tax bill.

However, when agents are filing on the internet, HMRC states that it doesn't take account of payments made in advance, and calculates tax due. This leaves accountants with a problem: do we assume that clients have made the proper payments to account, and deduct this sum? If clients haven't made payments to account as advised by us, or even the wrong amount, HMRC will pursue them for the tax due, and the client accuses us of errors.

If we give the figure due from HMRC, and payments in advance have indeed been made, HMRC will refund the overpayments made, but the client will accuse us of errors in not correctly stating the tax due.

This is a case of 'damned if you do, damned if you don't'. The Revenue has full details of all payments in advance, so why does it not include them in its internet calculations? NAME AND ADDRESS SUPPLIED.