HM REVENUE AND CUSTOMS: DEALING WITH THE TAX OBLIGATIONS OF OLDER PEOPLE
Publication of the Committee's 11th Report, Session 2009-10
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
"Older people are more likely to comply with their tax obligations than other taxpayers but many are getting a raw deal from their dealings with HMRC.
"The Department's systems are complex to the point where they confuse many older people. The systems also do not cope well with the multiple sources of income that many older people happen to have.
"The truth is that millions of older people are paying too much tax. They often receive multiple tax-coding notices, making it difficult for them to check whether they are paying the right amount of tax. Recent instances of the wrong tax coding notices being sent out can only compound this problem. A huge number of older people - over 2 million - are paying more tax on their savings income than they need to; and some are not claiming age-related allowances even though they are eligible to receive them.
"The tax affairs of older people are assuming ever greater importance for HMRC as the number of older people increases. They currently make up nearly a fifth of all taxpayers and, precisely because their tax affairs tend to be more complicated, their enquiries cost more to deal with. At the same time, older people are less likely to contact the department for help.
"HMRC must sort this out, by working to simplify its systems. It must also work with other government bodies and, importantly, the third sector to provide older people with the access they need to straightforward information and help with managing their tax affairs. The preference that many older people have for face-to-face advice should not be sacrificed in the Department's drive to achieve efficiency savings."
Mr Leigh was speaking as the Committee published its 11th Report of this Session which, on the basis of evidence from HM Revenue & Customs (the Department), examined the following issues: claiming the additional tax allowances available to older people; administering tax for older people; and providing cost-effective support for older people.
Older people are a significant and growing group for HM Revenue & Customs (the Department), making up 18% of taxpayers. In 2007, the number of people over the State Pension age was, for the first time, greater than the number of children, and around 5.6 million were liable for Income Tax. Older people are poorly served by the Department. They are more likely to comply with their tax obligations than other taxpayers but are less likely to understand them, and many pay more tax than they need to.
The Committee noted that errors occur because people's tax affairs often become more complicated when they reach pension age, and that the Department's systems do not cope well with their multiple sources of income. For example, an estimated 1.5 million older people have overpaid tax by £250 million because of discrepancies between the Department's records and those of their employers and pension providers. Older people may also be paying too much tax because they do not claim additional tax allowances available. Some 2.4 million older people have also overpaid around £200 million in tax because they did not have their savings income paid gross of tax.
The Committee concluded that the Department should devise simpler systems so that older people can have peace of mind about their tax affairs. At present, if they have more than one source of income, as many older people do, they receive multiple tax coding notices which make it difficult for them to check whether they are paying the right amount of tax. The onus is on older people to claim the age-related allowances, where the rules on eligibility are hard to understand and older people do not find the claim form easy to complete. It is also unacceptable that the Department does not have a clear idea how many older people are missing out and may therefore be paying more tax than they need to. Awarding the age-related allowances automatically, where information available indicates an individual's eligibility, would reduce the burden.
The Committee recommended that the Department should have a more coherent plan for meeting the needs of older people efficiently and effectively. Administering Income Tax for older people is costly for the Department and could rise further as the number of older people increases. It costs the Department twice as much on average to deal with an enquiry from an older person compared to those from other taxpayers because their enquiries tend to be more complicated. Older people were however less likely to contact the Department for help even though 36% did not understand their obligations, compared to 26% of all taxpayers. The Department should improve the support it provides to older people by working more closely with other agencies in the third sector and across government. In particular, it should safeguard opportunities for face-to-face contact which older people often prefer.