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A significant number of individuals of pensionable age pay too much or too little tax, according to a report released today by the National Audit Office.
The document estimates that by March 2009 around 1.5 million older people had overpaid tax by an average of £171 (£250 million in total), while approximately 500,000 had underpaid by an average of £207 (£100 million in total).
These errors were as a result of discrepancies between HMRC’s records and tax deducted by employers and pension providers, claims the NAO, which adds that the problems occurred because many taxpayers’ affairs become more complicated at pensionable age and the Revenue’s systems do not cope well with multiple sources of income.
The report goes on to suggest that about 3.2 million older people do not claim age-related tax allowances, and many individuals do not realise they are entitled to such advantages. Plus, 2.4 million pensioners paid around £200 million extra in tax because they did not have their savings income paid gross, according to HMRC.
In spite of these issues, around 80% of older people dealing with the taxman say they are satisfied with the service received and are less likely than other taxpayers to contact the Revenue for help, even though around 36% do not understand their tax obligations (compared with 26% of all taxpayers), says the NAO.
The office estimates that each enquiry from an individual of pensionable age costs twice as much to deal with as enquiries from other taxpayers because they tend to be more complicated. The taxman spends around £36 million per year in staff costs on dealing with enquiries from older people.
The head of the NAO, Amyas Morse, remarked: ‘By providing a more coherent service HMRC could make substantial savings because the number of enquiries from older people about their tax affairs would decrease: a win-win situation’.
The Low Incomes Reform Group praised the NAO’s ‘damning’ report, saying the 'well-researched' document’s findings come as ‘no surprise’.
‘We have written three reports in the past 12 years identifying these problems [of tax overpayments by pensioners] and their causes,’ said the organisation's chairman, John Andrews. ‘In that time, HMRC have paid only lip service to correcting the fundamental faults in their service strategy.’
'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,' added Mr Andrews.
'It is not often that [the LITRG] can heartily endorse almost every word in a NAO report, but this is an exception. It... provides key insights into the reasons why HMRC do not give an adequate service to their older customers.
'The NAO has shown that an investment in changing processes now will pay greater dividends later... Anyone promising these improvements would, we are sure, get the appreciation of the older electorate.'
