The retired facing ‘complex’ tax regime

The tax system for people in retirement has been described as being too complex, and, as a result, too many older people overpay their taxes.

The criticism has come from the House of Commons Public Accounts Committee.

The MPs’ report argued that individuals’ tax affairs become more complicated as they get older and that the current HM Revenue and Customs system for handling the multiple sources of income of many retired taxpayers does not cope well.

It is estimated that older people make up 18 per cent of the UK’s taxpayers but that they often pay more than they should.

Discrepancies between HMRC’s records and those of employers and pension providers mean that 1.5 million older people overpaid their taxes by £250 million.

However, retired and older taxpayers are less inclined to take up the issue of overpayment with the tax authorities than are younger people.

The report recommended that HMRC develop a tax system for the retired that is easier to understand. Often older people receive more than one tax code notice because they have more than one source of income.

The matter has been compounded by recent problems with HMRC’s new computer system which has amalgamated information on both income tax and national insurance contributions.

Specifically, the MPs want HMRC to set out a plan for simplifying the tax regime for the elderly and for cutting down on mistakes by June of this year.

The tax authority should also pay more attention to predicting the growing numbers of older taxpayers and to calculating how many fail to claim their age-related allowances, the committee proposed.

Additionally, people should be sent just a single document explaining how their tax code is calculated, and they should be offered a dedicated contact for getting in touch with HMRC when enquiring about their tax affairs.

Edward Leigh, chairman of the committee, said: “The department’s systems are complex to the point where they confuse many older people. The truth is that millions of older people are paying too much tax. HMRC must sort this out, by working to simplify its systems.”

A spokeswoman for the HMRC responded by saying that the committee’s recommendations would be looked at in detail.

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