Pensioners overcharged £450m by taxman

25th February 2010

Millions of pensioners are paying too much tax due to an overly complex tax system, according to MPs.

The House of Commons Public Accounts Committee slammed HM Revenue and Customs for giving the elderly "a raw deal" and urged the tax authorities to improve their treatment of older taxpayers.

The Committee's chairman, Tory MP Edward Leigh, said: "The truth is that millions of older people are paying too much tax.

"Many older people are getting a raw deal from their dealings with HMRC."

The committee said that although older people are more likely to follow tax rules than younger people, their tax affairs are often more complicated because many have multiple sources of income, from savings and pensions.

Mr Leigh said HMRC's "complex" systems confused many pensioners.

A report by the committee estimates 1.5m pensioners have overpaid £250m because of discrepancies between the department's records and those of the pensioner's employer or pension provider.

A further 2.4m have overpaid around £200m in tax on their savings. The report said this happens when savers ask banks to pay interest net of tax instead of getting it gross and calculating their own tax liability themselves.

Where a pensioner's overall income falls short of the starting threshold for income tax, currently £6,475 a year, getting interest paid net means tax may be paid needlessly.

The report also highlighted concerns that face-to-face advice from HMRC officials will soon be phased out in favour of online instructions.

It is simply unacceptable older people should continue to pay the wrong amount of tax - often overpaying amounts they can ill afford to lose.

For pensioners without internet access or who prefer to talk to people directly this will make it more difficult for them to receive vital information and assistance.

Robin Williamson, of the Low Incomes Tax Reform Group, said: "The report tells a sorry tale of older people being ill served by HMRC.

"It is simply unacceptable older people should continue to pay the wrong amount of tax - often overpaying amounts they can ill afford to lose - because of HMRC's reluctance to simplify their needlessly complex administrative systems."

An HMRC spokesman said: "The Government will consider the committee's conclusions and recommendations in detail and respond formally to the committee in due course by means of a Treasury Minute."

Claims Financial