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HM Revenue and Customs: Dealing with the tax obligations of older people

 

Older people are a growing group for HM Revenue & Customs and significant numbers pay too much or too little tax, according to a report released today by the National Audit Office.

Errors occur because many people’s tax affairs become more complicated when they reach pension age and HMRC’s systems do not cope well with their multiple sources of income. The NAO estimates that, by March 2009, as a result of discrepancies between HMRC’s records and tax deducted by employers and pension providers, some 1.5 million older people had overpaid tax by an average of £171 (£250 million in total), and around 500,000 older people had underpaid tax by an average of £207 (£100 million in total). These errors can have a disproportionate effect on older people as their net average annual income of £16,000 was around 25 per cent below the national average in 2006-07. The Department expects a new computer system introduced in June 2009 to reduce the level of errors.

Older people may also be paying more tax because they do not claim additional age-related tax allowances. The NAO estimates that some 3.2 million older people do not claim the additional allowances. Some may not claim these allowances because they do not have sufficient income to pay tax, while others do not realise they are entitled to them. Claiming these allowances would boost the average income of an older person by up to 4 per cent. HMRC estimates that some 2.4 million older people have also paid around £200 million more in tax because they did not have their savings income paid gross.

Around 80 per cent of older people dealing with the Department were satisfied with the service received. Older people are less likely to contact HMRC for help than other taxpayers, even though around 36 per cent do not understand their tax obligations (compared with 26 per cent of all taxpayers). When older people contact the Department, the NAO estimates each enquiry costs twice as much to deal with as enquiries from other taxpayers because they tend to be more complicated. HMRC spends around £36 million per year in staff costs on dealing with enquiries from older people.

Demographic changes are likely to increase the pressures and costs for HMRC. The Department should rethink its approach to ensure that older people get the financial support to which they are entitled. It should also work in a more joined-up way with other organisations to provide a more coherent service for older people on their tax affairs.

Mr Amyas Morse, head of the National Audit Office, said today:

"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."

 

Notes for Editors

  1. In this report the NAO has defined older people as people of State Pension age, currently 60 and over for women and 65 and over for men.

  2. Around 5.6 million older people were liable for Income Tax of around £14.2 billion in 2006-07. This data and the 2006-07 data on the average income of older taxpayers are the latest available.

  3. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.

  4. The Comptroller and Auditor General, Amyas Morse, is the head of the National Audit Office which employs some 900 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources. 

Press Notice 53/09
All enquiries to Phil Groves, NAO Press Office:
Tel: 020 7798 5339
Mobile: 07770 678447

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