Reuters is reporting that around one million people in Britain are paying the wrong amount of tax because of errors in processing by HM Revenue and Customs. This may be especially true of small businesses who have a more complex tax structure than individuals.

The news comes in a report to Parliament, Accuracy in Processing Income Tax, from the National Audit Office, published today.

The NAO found that errors resulted in £125 million ($250m) too little being paid and £157 million ($314m) too much being paid during 2006/07.

The errors have a much wider impact, the NAO added, in taxpayers’ anxiety, wasted time and effort in trying to put matters right.

Some groups are likely to be disproportionately affected, including taxpayers with complicated tax affairs, such as freelancers and people with several sources of income.

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. “HMRC has improved its processing of income tax returns but there are substantial numbers of taxpayers who are affected by processing errors.”

The opposition Conservative Party 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.”

The British Chamber of Commerce claims that the UK Budget for 2007/08 will cost small business £1.2 billion ($2.35bn) over the next two years.

A poll showed that 71 percent of British businesses would be worse off after tax rises announced by Chancellor Gordon Brown in Parliament yesterday.

The UK’s 4 million small businesses currently pay corporation tax of 19 percent on profits up to £300,000 ($588,000). But Brown announced he will raise this by one percent each year to 22 percent by 2009.

Simultaneously, corporation tax on big companies will be cut from 30 percent to 28 percent, leaving smaller businesses gasping at the unfairness of it all.

Some attempt has been made to offset this move by allowances and credits on research and development and major business investment.

Nick Goulding of the Forum of Private Business said : “The vast majority of small businesses are not going to carry out R&D or buy new machinery every year. This is the type of one-off investment that they make at the start or every ten years”.

The move seems aimed at retaining larger companies in Britain by adjusting British tax levels to those in competitor countries, and making smaller businesses, which can’t leave these islands, pay for it.