Page last updated at 23:01 GMT, Thursday, 22 October 2009 00:01 UK

1.5m pensioners 'overpaying tax'

Pensioner couple
Tax affairs become more complicated at pension age

Some 1.5 million pensioners have overpaid a total of £250m in tax since 2002-3, according to a report by the National Audit Office (NAO).

The overpayment calculates to an average of £171 each.

This was due to discrepancies between tax authority records and tax deducted by employers and pension providers.

Another 500,000 pensioners underpaid tax by an average of £207 each, and the NAO called on HM Revenue and Customs to provide a more coherent service.

The revenue said it had plans to cut out the number of mistakes.

"We are determined to reduce over and underpayments," it said.

"During the last few months we have significantly upgraded our computer systems to improve accuracy and deliver a better service to older taxpayers," it added.

Entitlement

Older people may also be paying more tax because they do not claim additional age-related tax allowances. These allowances would boost their income by up to 4%.

Too many pay more than they need to because they do not claim allowances to which they are entitled
Amyas Morse, NAO.

The NAO estimated that 3.2 million pensioners did not claim the additional allowances. Some might not claim them because they did not have sufficient income to pay tax, while others did not realise they were entitled to them.

The HMRC estimated that 2.4 million older people had also paid around £200m more in tax because they did not have their savings income paid gross.

"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," said Amyas Morse, head of the NAO.

"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 said it would soon start a publicity campaign to encourage pensioners to reclaim tax, ensure their investment income is paid free of tax, and to take up age-related allowances.

But the Low Incomes Tax Reform Group (LITRG) said the report was "no surprise" and "damning".

"The Low Incomes Tax Reform Group has written three reports over the last 12 years identifying these problems and their causes," said its chairman John Andrews.

"In that time HMRC have only paid lip service to correcting the fundamental faults in their service strategy," he added.



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