HMRC admits pension tax error dating back to 2010 may have overcharged millions

Millions of UK pensioners could be entitled to tax refunds after HM Revenue & Customs (HMRC) admitted a long-running calculation error that dates back to 2010 may have resulted in many people paying too much income tax.

The issue affects some pensioners who receive the State Pension and pay tax through PAYE, Self Assessment or Simple Assessment. HMRC says the error was caused by the way annual State Pension increases were processed within its tax systems.

According to HMRC, up to 3.1 million pensioners may have been affected during the 2024/25 tax year, including around 1.4 million people taxed through PAYE and a further 1.7 million using Self Assessment or Simple Assessment.

The mistake occurred because some tax calculations incorrectly used 52 weeks of the higher State Pension rate, rather than the correct method of applying 51 weeks at the current year's rate and one week at the previous year's rate. Although the average annual overpayment is relatively small for most people, the error has accumulated over many years.

HMRC Chief Executive John-Paul Marks has apologised to those affected and confirmed that work is underway to correct the problem and ensure future tax calculations are accurate. The tax authority says it expects to introduce a permanent solution later this year.

Pensioners who believe they may have paid too much tax are encouraged to review their tax records and contact HMRC if they think they have been affected. Due to the large number of potential cases, refunds and corrections may take time to process.