LONDON (Reuters) - About one million people are paying the wrong amount of tax because of errors in processing by HM Revenue and Customs, the National Audit Office said in a report on Friday.
Income tax is processed accurately in 95 percent of cases, the spending watchdog said in its report to parliament, "Accuracy in Processing Income Tax".
But taxpayers are paying 32 million pounds too much to the HMRC as a result of the mistakes.
The NAO found that the errors resulted in 125 million pounds too little being paid and 157 million pounds too much being paid during 2006/07.
The errors have a much wider impact than monetary value though, the NAO added, saying it resulted in taxpayers' anxiety and wasted time and effort in trying to put matters right.
It also added to the department's costs in having to rework cases.
Vulnerable groups such as pensioners are likely to be disproportionately affected, Sir John Bourn of the NAO said, but others include taxpayers with complicated tax affairs, such as freelancers and people with several sources of income.
The average underpayment last year was 250 pounds while the average overpayment was about 290 pounds.
The major causes for the errors are the increased complexity of processing work as people change jobs more frequently.
Accuracy rates vary significantly across local offices, but the NAO acknowledged that HMRC projects to automate clerical processes have been successful in reducing levels of error.
The NAO recommended that the HMRC separates out more complex cases for processing, develops staff training and strengthens the help available for taxpayers affected by errors.
Bourn added: "HMRC has improved its processing of income tax returns but there are substantial numbers of taxpayers who are affected by processing errors."
The Conservative Party's Shadow Chief Secretary Philip Hammond said the amounts involved were "unacceptable".
"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."