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Many pensioners overpay tax

According to report by the National Audit Office (NAO) pensioners have overpaid around £250m in tax. The overpayment calculates to an average of £171 each. Another 500,000 pensioners underpaid tax by an average of £207 each. This they say is as a result of discrepancies between HM Revenue & Customs records and pension providers.

The report, "HM Revenue and Customs: Dealing with the tax obligations of older people", also estimated that some 2.4 million older people have paid around £200m more in tax because they did not have their savings income paid gross.

Pensioners may also be paying more tax because they do not claim additional age-related tax allowances. 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%. The current rates and allowances for income tax can be viewed here:

The NAO blames HMRC's systems, which it says are failing to cope with pensioners having multiple sources of income. 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".

National Audit Office head Amyas Morse says: "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."

But the Low Incomes Tax Reform Group (LITRG) said they were not surprised. "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".