26.07.2008 HMRC TAX ERROR COULD HIT HUNDREDS OF THOUSANDS OF PENSIONERS

Nearly half a million pensioners could be forced to repay unclaimed tax because of an error by HM Revenue & Customs (HMRC).

A report from the National Audit Office (NAO) has revealed that, since 1983, HMRC has failed to collect all the tax which was due to be paid on pension income.

It is estimated that around 420,000 pensions could be affected by the fault, which has cost HMRC up to £135 million a year in tax revenue over the last 25 years.

According to Scottish chartered accountants Campbell Dallas, HMRC will not be able to issue those affected with the correct tax codes until the next tax year.

It will then waive unpaid tax for the years up to the 2007-8 tax year but in the tax year beginning April 2010 will claim back unpaid tax for the previous two years.

Bruce Wilson, tax partner at Campbell Dallas, said that with food and energy bills rising, the extra tax payment will have a serious impact on some households, especially as pensioner inflation is currently running well above the general level of inflation.

"The pensioners hardest hit by HMRC's mistakes will be those on low incomes who face a bill for up to two years of unpaid tax on top of higher bills in the future," said Wilson.

"HMRC would argue that these pensioners have benefited from lower tax bills in the past, but receiving a demand for payment from HMRC is likely to cause a great deal of anxiety for those pensioners who are less well-off."

HMRC will allow for repayments over a longer period in cases of where the collection of unpaid tax could cause financial difficulties and pledged to provide those affected with advance warning, according to the NAO report.