As many as 8.7 million pensioners may have paid too much tax last year after HM Revenue & Customs admitted a calculation error that went undetected for about 10 months – and which critics fear could have been ongoing for years. The blunder, which saw HMRC pocket millions more than intended, left each affected pensioner paying roughly £5 extra in tax.
The issue was flagged in August last year by Tory MP Richard Holden, but was not officially reported to the Department for Work and Pensions until October, according to the Sunday Times. HMRC now hopes to resolve the matter this summer, but is not issuing automatic refunds – pensioners must contact the department themselves to claim their money back.
“Up to 8.7m pensioners may have overpaid tax due to HMRC error; average £5 each.”
The error stems from how HMRC calculates tax on the state pension. The state pension is paid gross, but recipients still pay income tax on it. HMRC guidance states that tax should be calculated based on 51 weeks of the current tax year’s pension rate and one week of the previous year’s rate, to account for the timing between the start of the tax year and the first payment. But instead, HMRC used 52 weeks of state pension payments at the higher rate, using DWP data.
After the new state pension for 2025/26 was set at £230.25 a week – up from £221.20 in 2024/25 – this meant income was recorded as £9.05 a week higher than it actually was. On average, those affected ended up paying an extra £5 in tax.
HMRC’s spokesperson said: “We apologise to those affected by this calculation error and are working to fix the issue, although the impact is small with the difference in tax owed being around £5 in most cases.”
But critics are demanding urgent action. Sir Mel Stride, the shadow chancellor, said: “If HMRC have been charging millions of pensioners too much tax then questions need to be answered, and the matter must be urgently put right. Ministers need to ascertain what has happened and what action is being taken to ensure these sorts of errors do not happen again.”
Dan Tomlinson, the minister responsible for HMRC, previously stated that “most pensioners pay the right amount of tax in real time,” but acknowledged: “HMRC has become aware that for a subset of individuals in receipt of the state pension, a calculation error means that their tax is calculated based on 52 weeks at the new rate. The difference in tax owed is approximately £5. Affected individuals can call HMRC to amend any incorrect figures of state pension.”
Pensioners who believe they have been affected are advised to contact HMRC for a refund. In the meantime, they will continue to pay tax as normal.