In its report on the draft Finance Bill 2016, the committee said upcoming changes to the taxation of savings and dividends are ‘complex, confusing and poorly communicated’. It also crticised the government's failure to consult consistently on tax policy making. It also criticised the volume of tax changes, which it says will be costly and add to the compliance burden.

On changes to the taxation of savings, which will see the abolition of the tax deduction scheme for interest (TDSI) , whereby banks automatically deduct tax from most interest before it is paid, the committee says most taxpayers are unaware of the imminent change, whether or not they may have to file a tax return and pay tax.

It also flagged up concerns that the proposed design of the changes will lead to unfortunate results, including high marginal rates for those on the edges of tax bands. 

The committee heard evidence from HMRC that there is no plan at present to mail the whole customer population that might have tax on interest to advise them of the changes. Instead, HMRC’s preferred method is for information to be made available via banks and building societies, and on the gov.uk website.

The report states: ‘We strongly recommend that, as a matter of urgency, HMRC replace their current approach to communications with a comprehensive strategy to make taxpayers aware of the abolition of the TDSI and the introduction of the new Personal Savings Allowance and of recent changes to ISAs and to the starting rate for savings income.

‘Using a wide variety of media, including more traditional approaches, it should aim to inform savers of both their tax obligations and the need to review their savings choices in the light of the changes.’

In addition, the committee wants to see HMRC take ‘urgent action’ to clarify its plans for implementing the new self assessment regime, which will automatically inform individuals of their tax liabilities.

It highlighted particular concerns about the quality of the data from third parties which will be used by HMRC to pre-populate tax returns, after hearing evidence that the information supplied by the Department for Work and Pensions (DWP) can be the cause of inaccuracies in the current system. It wants HMRC to take steps to ensure this data is robust and accurate before proceeding with the new arrangements.

The committee also wants the government to review the current proposal that any dispute of a self assessment must take place within 30 days of it being issued,  saying it is concerned that individuals will struggle to obtain, often from third parties, the information necessary to check their assessments and to dispute them within that time limit.

Lord Hollick, chairman of the committee, said: ‘Changes to how we are taxed can have a huge impact on financial planning including savings and pension arrangements. It is vital that taxpayers know what it is expected of them and how much they will be taxed. We are concerned that the government’s consultation and communication about imminent and important changes in the finance bill has been so poor.’

The committee’s report was published the same day that business secretary Sajid Javid announced the government’s commitment to cut regulation by an additional £10bn when he said this would be the new business impact target (BIT) under the requirements of the Small Business, Enterprise and Employment Act.

‘It’s an ambitious target not just because of its size, but also because of its scope. For the first time ever, the BIT doesn’t just cover the impact of legislation. It also includes the way statutory regulators enforce existing rules.

‘Rather than being allowed to hide behind red tape, they’re going to have to look at the cost to business of the way they work,’ Javid said.

However, the select committee wants the government to provide a more comprehensive assessment of the impact on businesses and individuals of HRMC’s move to digital accounts, which it claims risk adding to compliance and administration burdens. It is concerned about the lack plans to educate and support taxpayers, particularly those unfamiliar with, or without access to, digital technologies.

Hollick said: ‘The government must engage with businesses to address their concerns about the administrative burden of mandatory digital record keeping and clarify how quarterly reporting will be implemented.

‘Small businesses fear that the introduction of quarterly reporting is a “Trojan horse” for the introduction of mandatory quarterly payments which could damage the established cash flow of many small businesses.’

The report also considered the role and effectiveness of OTS, calling for the organisation to be given additional resource and a wider remit to give It an integral role in tax policy design.

The House of Lords ecoonomic affair select committee report on the draft Finance Bill is here