Tax affairs become more complicated at pension age
The UK tax authority's system for dealing with older people's tax affairs is too complex and leads to many people overpaying tax, MPs have said.
More than two million older people have paid more tax on their savings income than they need to, the Public Accounts Committee found.
HM Revenue and Customs does not know how many people miss out on age-related allowances they are entitled to.
The tax authority said it was considering the report in detail.
Older people - who make up 18% of UK taxpayers - were more likely to pay their tax, but less likely to understand the system, the report found.
Their tax affairs become more complicated at pension age, but HMRC's systems did "not cope well" with these people's multiple sources of income, it added.
Discrepancies between the HMRC's records and those of employers and pension providers mean that 1.5 million older people overpaid £250m in tax - but these people were less likely to contact the tax authority for help than younger taxpayers.
"The department [HMRC] should devise simpler systems so that older people can have peace of mind about their tax affairs," the report found.
Among the recommendations to HMRC are:
- Establishing a clear plan by June 2010 to make the system simpler for older people and reduce errors
- Forecasting the growing numbers of older people and helping them with their tax affairs
- Accurately calculating how many people fail to claim their age-related allowances
- Providing people with a single document explaining how their tax code is calculated
The report also called for a single point of contact for older people to get help in dealing with their tax affairs.
Edward Leigh, chairman of the committee, said that older taxpayers were getting a "raw deal" in their dealings with HMRC.
"The department's systems are complex to the point where they confuse many older people," he said.
"The truth is that millions of older people are paying too much tax. HMRC must sort this out, by working to simplify its systems."
A spokeswoman for the HMRC said the government would consider the committee's conclusions and recommendations in detail and respond formally to the committee in due course.
Older people tend to receive multiple tax code notices because they have more than one source of income.
Questions have been raised over the accuracy of coding notices this year owing to a new computer system, which is bringing people's tax and national insurance records together for the first time.
The Low Incomes Tax Reform Group (LITRG) says at least seven different errors have already come to light with pensioners' new coding notices. The mistakes could lead, at worst, to people paying £108 extra tax per month, while some may not pay enough tax.
Robin Williamson, of LITRG, said that the report was "a sorry tale of older people being ill served by HMRC".
"There needs to be more joined up government between HMRC and the DWP, and there has to be much more effective reaching out by central government to provide older people with information and advice, through local authorities and local advice centres," he said.
"Face-to-face help and home visits are particularly valued by older people, and HMRC must give this the priority it deserves, if necessary funding the voluntary sector to do so."