Older taxpayers often paying the wrong amounts

Well over one million pensioners have overpaid their tax, official figures have revealed.

The National Audit Office (NAO) has calculated that the additional, unnecessary payments total £250 million over the last six years, the equivalent of £170 per pensioner.

The extra tax charges occurred because there were discrepancies between HM Revenue and Customs’ records and the level of tax deducted by employers and by pension providers.

But some 500,000 older people have also underpaid their taxes, the NAO discovered, with average shortfall coming in at £207 per person and £100 million in total.

As a result, the NAO has called on HMRC to improve its performance in this area.

One reason for the discrepancies is that older people tend to have multiple sources of income, and the current HMRC system is not adept at dealing with the ensuing complexity.

Another is that people are not claiming the age-related allowances to which many are entitled. The NAO put the figure of non-claimants at 3.2 million.

An estimate from HMRC suggests that 2.4 million have also paid an extra £200 million in tax because they do not receive their savings income paid gross.

Amyas Morse, head of the NAO, said: “Older people want to pay the right amount of tax, but too many pay more than they need to because they do not claim allowances to which they are entitled and because of errors.

“By providing a more coherent service, HMRC could make substantial savings as the number of enquiries from older people about their tax affairs would reduce – a win-win situation for all.”

HMRC responded by saying that the tax authority was determined to reduce over and underpayments: “During the last few months we have significantly upgraded our computer systems to improve accuracy and deliver a better service to older taxpayers.”

HMRC also plans to launch a publicity campaign aimed at encouraging older taxpayers to reclaim tax, to take up age-related allowances and to make sure that investment income is paid free of tax.