Taxman's blunders mean one million pay the wrong bill

Pensioners are worst affected as they are more likely to suffer from anxiety when the mistakes come to light, according to the public spending watchdog.

The National Audit Office found that £157million of taxpayers' money was overpaid to HM Revenue and Customs last year - a rise of £37million on the previous year.

More than 540,000 individuals were overcharged - each paying an average of £290 too much.

The taxman also undercharged to the tune of £125million in 2006/07 - a decrease of £14million on the previous year.

The news came as it emerged the Revenue is demanding unprecedented powers to seize unpaid tax from bank accounts or the sale of a house. For the first time, the taxman would be able to take money from bank or building society accounts without consent.

The NAO blamed the large number of tax errors on the fact that workers changed jobs more often, making the system more complicated.

It warned that the effect of the mistakes was not purely financial.

"The full cost of these errors is largely hidden - in reworking cases to correct mistakes, and in the time, cost and anxiety for taxpayers in getting errors put right," its report said.

"Such errors also disproportionately affect more vulnerable groups who are probably less able to deal with them."

In some cases, calculation errors led to taxpayers being hit with unexpected demands for large amounts. The NAO said pensioners and those with several jobs or sources of income were most likely to suffer from processing errors.

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."

Opposition MPs and campaign groups branded the errors "unacceptable".

Tory Treasury spokesman Philip Hammond said: "This level of Revenue error in calculating people's tax is completely unacceptable.

"What makes matters worse is that vulnerable people such as pensioners are suffering the most. With such a dismal track record, it beggars belief that the Revenue is asking for powers to deduct tax it claims is owed direct from bank accounts."

Edward Leigh, chairman of the Commons' public accounts committee, said: "A million taxpayers are still paying the wrong amount of tax because of HMRC's mistakes.

"My advice is to check your tax because for those affected by processing errors, over and underpayments average around £250 to £300.

"And errors don't only cause financial problems, they also result in anxiety and wasted time and effort in putting matters right. Many of the people who are affected are vulnerable members of society and deserve better."

Matthew Elliott of the Tax-Payers' Alliance criticised the complexity of the system.

"This report demonstrates yet again that the tax system is becoming too complicated and taxpayers who do not have the money to afford top accountants are getting tied up and ripped off by the taxman," he said.

"It's the complexity of the system that's trapping people, so it needs radical reform."

A spokesman for the Revenue denied it would access personal bank accounts unless all other requests for payment had failed.

"Any new approach - which would first have to be agreed by Parliament - would apply to tax debts only when all the normal avenues for collection had been exhausted," he said.