HM Revenue and Customs (HMRC) has pledged to improve the accuracy of its income tax calculations after the National Audit Office (NAO) found that more than a million people were paying the wrong amount of tax because of processing errors.
The public spending watchdog found that the right amount of income tax was calculated in 95% of cases, but errors resulted in underpayments of £125 million and overpayments of £157m, affecting a million taxpayers in 2006-07.
Sir John Bourn, head of the NAO, said: "HMRC has improved its processing of income tax returns but there are still substantial numbers of taxpayers who are affected by processing errors. Vulnerable groups such as pensioners are likely to be disproportionately affected."
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Accuracy rates in income tax processing varied "significantly" across local offices, ranging from 66% to 93% on PAYE and from 91% to 99% for Self Assessment, the NAO's report says.
An HMRC spokesperson responded to the report, which will go to parliament, saying: "As the NAO themselves say, HMRC accurately calculates the right amount of tax in 95% of income tax cases and has improved its processing of income tax returns.
"We are determined to improve this accuracy even further through better management of tax return processing in our offices and the use of dedicated teams to handle more complex cases."
The auditors found that 63% of all errors affecting PAYE taxation related to tax coding, while in self assessment, coding errors were responsible for 10 times more errors than any other problem.
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