‘Tax chaos’ for elderly

By Emmeline Saunders

Older people may be paying too much or too little tax, a report by the National Audit Office (NAO) has found.

The NAO estimates that by March this year, due to discrepancies between HM Revenue and Customs’ records and tax deducted by employers and pension providers, 1.5 million people had overpaid an average £171 in tax (£250 million in total).

But another 500,000 people had underpaid tax by an average £207 each, at a total of £100 million.

Tax discrepancies are made because pensioners do not realise they are entitled to claim allowances, and errors occur because HMRC’s systems do not cope well with older people’s complicated tax affairs.

The report found these errors can have a disproportionate effect on older people as their net average yearly income of 16,000 was 25 per cent below the national average in 2006/07.

NAO head Amyas Morse 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.”

Chair of Low Incomes Tax Reform Group John Andrews said: “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.

“We hope that the government and HMRC will grasp this opportunity to make a significant change for the benefit of older people. Anyone promising these improvements would, we are sure, get the appreciation of the older electorate.”

The NAO estimated 3.2 million older people do not claim for age-related tax allowances, either because they do not earn enough income to pay tax or because they do not realise what they are entitled to.

Claiming these allowances would increase the average income of a pensioner by up to four per cent, the audit office recommended.

The report also found older people are less likely to contact HMRC for help tax queries, yet around 36 per cent do not understand their tax obligations, compared with 26 per cent of all taxpayers.

But when older people contact Customs, it is estimated each enquiry costs twice as much to deal with than queries from other taxpayers, due to the complexities of pensioners’ tax matters.

HMRC spends an estimated 36 million a year dealing with requests from older people.

The NAO has recommended that simplifying the processes for pensioners would save HMRC significant sums of money. A new computer system which was introduced in June this year is expected to reduce the number of errors made in tax affairs.