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Last Updated: Monday, 21 March 2005, 13:20 GMT
Pensioners 'missing tax breaks'
A grandmother with her grandson
Pensioners can lose out significantly, says the LITRG
Pensioners are paying too much tax and missing out on benefits because of "inadequate" tax guidance, a campaign group has said.

The Low Incomes Tax Reform Group (LITRG) said the Inland Revenue was not doing enough to make sure pensioners complete tax form P161.

Pensioners need to fill in the form to make sure they do not miss out on more generous personal tax allowances.

However, the Revenue defended the form and the guidance it issues.

Allowance check

The P161 tax form should be received just before state pension age and must be filled in to ensure tax is deducted correctly.

We want pensioners to pay the right amount of tax and are continually reviewing our processes
Inland Revenue spokesman

Failure to complete the form can mean pensioners miss out on the higher personal allowances that the elderly are entitled to.

In the 2005/2006 tax year, the personal allowance will be 7,090 for those aged 65 to 74 and 7,220 for those aged over 75.

These rates are much higher than the normal personal allowance, which will be 4,895 from the new tax year.

Pensioners can check to ensure they are receiving the right personal allowance through their tax code.

For example, if a person is receiving the basic personal allowance their tax code will have the letter L in it. However, if they are aged between 65 and 74 it should have the letter P in it.

Full details of personal allowances and tax codes are available from the Inland Revenue website.

Tax awareness

Form P161, which is computer-generated, is sent by the Inland Revenue.

But the form is only issued if the Revenue receives notification by the Department for Work and Pensions that someone is due to reach state pension age.

Missing higher personal allowances on reaching 65
Married couple's allowance not being given
Pensioners with multiple sources of pension not being looked at holistically by the Revenue leading to overpayments
The government not deducting the tax payable on the state pension when calculating Pension Credit
Source: Low Incomes Tax Reform Group

The LITRG said the form was sometimes issued to women who had already been receiving their pensions for nearly five years. They were unlikely to complete it, as it did not appear relevant to them, LITRG warned.

Meanwhile, people who had not worked before they received a pension may not receive the form at all.

The LITRG is now calling for the form to be revised and for better literature focusing on retirement issues.

However, in a statement the Revenue defended the form and its guidance

"The Inland Revenue works very closely with pensioner representative groups to continually improve the levels of service we provide to our customers," said a spokesman.

"We want pensioners to pay the right amount of tax and are continually reviewing our processes to ensure all our communication with our customers reflects their needs."

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