Older People’s Tax is Too Difficult For The Taxman

Too many retirees are paying too much tax because HM Revenue and Customs can’t cope with complex calculations, the national audit office has revealed.

Many retired people receive income from several different sources and are entitled to extra allowances that makes working out how much tax they pay more complicated than working out the amount for younger people, said the NAO.

This means up to 1.5 million pensioners have on average overpaid £171 each - that adds up to a massive £250m million more in the tax office bank accounts than should be there.

Yet another 500,000 had underpaid tax by £100 million because of failures in HMRC systems and differences between HMRC calculations and those of employers and pension providers.

Amyas Morse, head of the National Audit Office, 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.”

If all older people claimed age-related allowances to which they are entitled, their average income would go up by 4% each, the NAO indicated.

New HMRC IT systems have been installed to reduce the errors, but the NAO warned that with an aging population, if HMRC does not get on top of the problem, it would only get worse.

The NAO also discovered that older people are less likely to contact their tax office than anyone else and about a third do not understand income tax or allowances they can claim.

The costs of dealing with tax inquiries from older people are £36 million just on staff - and these inquiries cost twice as much to deal with than other inquiries as they are more complicated to deal with.