To ask Her Majesty's Government whether every former member of the Army who retired due to disability as a result of service and who did not receive their related allowances tax-free has now had the tax-free element refunded with interest; if so, at what interest rate; if not, whether all applicable refunds will be paid; and how many cases there have been. [HL1063]

In 1998, it was discovered that a number of service invaliding pensions, paid to Army veterans, that should have been tax-free because they were attributable to service, had been taxed in error. All the identified errors have now been rectified.

Her Majesty's Revenue and Customs has paid back tax to all 1,320 pensioners affected by the incorrect taxing of invaliding pensions together with simple interest at the repayment supplement rate. It is not possible to provide a definitive reply of the interest rates used as a different repayment supplement rate or rates will have been paid to each individual according to when the overpayment occurred.

It was also agreed that compensation outside the normal six-year repayment period was to be paid by applying compound interest rates, using retail prices index rates plus 2 per cent, to the tax wrongly deducted, net of the estimated repayment by the Inland Revenue.