Around 3.2 million State Pension recipients may have paid too much tax after HMRC used incorrect pension figures in calculations spanning several tax years. The authority has acknowledged the error and outlined plans to correct affected accounts, potentially triggering repayments for millions of taxpayers.
How a State Pension Calculation Error Affected Millions
According to Yorkshire Live, the issue stems from discrepancies between the State Pension amounts used by HMRC and the figures that should have been applied when calculating tax liabilities.
HMRC’s annual report identifies errors across three tax processes: Pay As You Earn (PAYE), Self Assessment, and Simple Assessment.
The problem affected Self Assessment pre-populated figures from the 2010–2011 tax year, PAYE end-of-year reconciliations from 2015–2016, and Simple Assessment calculations from 2016–2017.
In affected cases, the tax authority used a pension amount that differed slightly from the correct annual figure.
Credit: Canva
Nearly 3.2 Million Taxpayers Could Be Affected
HMRC estimates that approximately 1.4 million PAYE taxpayers were overcharged because of the error.
Another 955,000 Self Assessment taxpayers and around 760,000 Simple Assessment taxpayers may also have been affected, bringing the combined estimate to approximately 3.2 million.
Although the number of affected taxpayers is substantial, the individual financial impact is generally small.
For tax years beginning in 2021–2022, HMRC estimates an average annual overcharge of £1.76 for basic-rate taxpayers receiving the full basic State Pension.
Those receiving the full new State Pension faced an estimated average overcharge of £2.30 per tax year.
These estimates describe the average loss for a single tax year, rather than the total amount an individual might recover across multiple years.
Pensioners Can Request Reviews of Earlier Tax Years
HMRC intends to identify affected taxpayers and correct their records, but its ability to issue automatic repayments for earlier years is limited by available data.
Antonia Stokes, of the Low Incomes Tax Reform Group, welcomed the opportunity for taxpayers to challenge historic overcharges while questioning those limitations.
“It is disappointing that HMRC data constraints prevent automated repayments further back, but it is positive that taxpayers can take steps to rectify earlier years if they identify they have been overcharged.”
She added:
“HMRC should ensure they make this process as easy as possible and that they draw attention to its existence so that people can check entitlement for earlier years.”
The distinction matters for pensioners whose incorrect tax calculations date back beyond the years HMRC can correct automatically.
How HMRC Plans to Correct Pension Tax Overcharges
Affected taxpayers will not necessarily receive their repayments through the same process.
HMRC plans to use PAYE tax code adjustments, credits to Self Assessment accounts, and alternative repayment methods, including payable orders, where appropriate.
Pensioners who suspect they were overcharged in previous years can also request an individual review if they have supporting evidence.
John-Paul Marks, HMRC’s chief executive, explained:
“If customers believe they were affected in earlier years and have the necessary evidence, they can ask HMRC to review their position. These requests will be considered on a case-by-case basis.”
HMRC has confirmed that it will actively identify affected cases and implement corrections through PAYE coding adjustments, Self Assessment account credits, or payable orders where necessary.
