Sir Steve says that figures published this morning from HMRC on tax refunds suggest the taxman has ‘over-taxed’ by up to £500m since 2015, expecting people to go through a complicated process to claim back refunds when they have been overtaxed.

Analysis by Royal London found that since April 2015, HMRC has had to hand back £493m to individual taxpayers who have been over-taxed on income withdrawals or second homes.

Royal London is recommending that the system be reformed so that one-off pension withdrawals are taxed at the standard rate of income tax, with any outstanding balance collected by end year adjustments and Second Home stamp duty is not collected for routine house sale and purchases except in cases where there is no linked sale and the intention is clearly to become a second home owner.

The outspoken pension commentator says that there are two areas of the tax system where HMRC is now “systematically” collecting huge sums in tax which it then has to hand back to taxpayers.

These are:

•   Income tax on pension withdrawals. Savers using the new ‘pension freedoms’ are taxed on an ‘emergency tax’ basis when they take money out of their pensions, says Royal London, and then have to fill in one of three different forms to claim the money back. Since the system started in April 2015, the total amount refunded to taxpayers has been £262 million;
•   Extra stamp duty on ‘second homes’ which turn out not to be second homes – where someone completes the purchase of a house before they have sold their existing house, they have to pay an extra 3% stamp duty on the transaction. Figures suggest that the total amount which HMRC has had to refund since April 2016 is £231 million.

Sir Steve Webb said: “HMRC is clearly out of control.   It operates a system of ‘tax first, ask questions later’, presumably so that the Government can enjoy some extra interest until the money is claimed back.

“It is time to speak up for ordinary citizens who are forced to pay excessive amounts of tax and then go through the hassle of claiming it back.  This is a system built around the needs of the Treasury and the bureaucracy, not one which puts people first.”