Older people are increasingly paying too much or too little tax because of failings in HM Revenue & Customs' (HMRC) current systems.
A report by the National Audit Office (NAO) has found that problems are being caused by the systems' trouble with dealing with multiple sources of income, which is causing many people's tax affairs to become complicated when they reach pension age.
The NAO estimates that approximately 1.5 million older people had overpaid their tax bill by an average of £171 up to March this year - £250 million in total.
Around 500,000 more are thought to have underpaid by £207, equating to a shortfall of £100 million. Such discrepancies are likely to have a more acute effect on older people as their average annual income is around a quarter less than the national average.
"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," said Amyas Morse, head of the National Audit Office
"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."
Some 3.2 million older people could paying more than is necessary because they are neglecting to claim additional age-related tax allowances, the NAO said.
However, such problems are often not addressed, as older people are less likely to contact HMRC for help, even though almost four in ten do not have a clear understanding of their tax obligations.
"The Department (HMRC) 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," said the report.
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