The Inland Revenue this week headed off a potential Whitehall row after backing down in its disagreement with the Ministry of Defence over who should pay dispensation payments to soldiers following a 'cock-up' over tax on army disability pensions.
Last month the Revenue and MoD were ‘exceedingly embarrassed’ by revelations that 1,000 soldiers’ disablement pensions have been wrongly taxed for the past 50 years.
Payments from army pensions were supposed to be exempt, but were deducted tax, resulting in fears that sums ranging from £30,000 to £100,000 will have to be paid out. The final cost is estimated to be in the region of £10m.
Initially, the Revenue said it would not be paying out any compensation, and that it would be the responsibility of the MoD. However, this week it said it would refund the overtaxed amount.
A Revenue spokeswoman, said: ‘We are repaying the overpaid tax and interest and expect the final figure to be in the region of £10m. We have also agreed special dispensation to pay back the full amount from over 50 years, rather than the six years we usually go back.’
A spokeswoman for the MoD, said: ‘The Revenue has agreed to reimburse soldiers we have identified in what you could call a cock-up, in full.’
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