MORE than one million people will learn today they have paid the wrong amount of tax because of mistakes made by HM Revenue and Customs as plans emerged for it to seize money to cover unpaid tax bills.

A National Audit Office (NAO) report warns processing errors by the Revenue led to £157m of tax being overpaid during the past year, with vulnerable people such as pensioners disproportionately affected. It said £125m of tax was also underpaid.

Whitehall's spending watchdog blamed errors on the increased complexity of processing tax because people change jobs more often, as well as the need to process some cases manually.

However, the watchdog said the errors had a wider impact, leading to anxiety, taxpayers having to put time and effort into putting matters right, and additional costs for the Revenue.

The report comes as the Revenue called for powers to take cash directly from bank accounts of hundreds of thousands of businesses and individuals who do not pay their tax bills on time. In a consultation paper, it also asked if it should be allowed to demand cash from the sale of the land or property of non-payers.

The NAO found Revenue calculations of the amount people had to pay were accurate in about 95% of cases.

It said almost 1.5 million people were over or undercharged tax during the past tax year but once some errors had been corrected after being brought to the Revenue's attention by taxpayers, about one million people were charged the wrong amount.

More than 500,000 people were undercharged tax by an average of £250 each, while more than 540,000 were overcharged, paying an average of £290 too much. In some cases, mistakes led to people receiving udemands for much larger amounts.

The report found people with complicated affairs, such as pensioners and people with several jobs or sources of income, were most likely to suffer from processing errors.

Critics yesterday attacked the disproportionate effect of errors on the vulnerable and plans to allow the taxman to take money straight from bank accounts without a court order.

Shadow Chief Secretary to the Treasury Philip Hammond said: "This level of Revenue error in calculating people's tax is completely 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."

Martyn Evans, director of the Scottish Consumer Council, said: "We expect a key public service to do significantly better than this. We also expect refunds, with interest, to be issued as quickly as possible."

John McFall, Labour MP for West Dunbartonshire, who is chairman of the Treasury Select Committee, said: "It is important the utmost care is taken with those on low income who are vulnerable. I would hope lessons will be learned from the National Audit Office report."