HMRC may owe millions of people money after a tax error that saw pensioners overpay by millions of pounds. Up to 8.7 million pensioners may have paid too much tax last year, with each overpaying about £5 on average.
How the error occurred
The state pension is paid gross, but recipients must pay income tax on it. HMRC calculates tax based on 52 weeks of state pension payments at the higher rate using DWP data. However, the correct calculation should use 51 weeks of the current year's rate and one week of the previous year's rate. After the new state pension for 2025/26 of £230.25 a week was introduced (up from £221.20 in 2024/25), income was recorded as £9.05 a week higher than it actually was, leading to an average overpayment of £5 in tax.
Timeline of the issue
The problem 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. HMRC hopes to resolve the issue this summer. The department is now working to determine how many people are affected but is not issuing automatic refunds at present.
Official response
A 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.”
Sir Mel Stride, the shadow chancellor, urged the department to act quickly: “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 said “most pensioners pay the right amount of tax in real time” but acknowledged the error. He added: “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.”
What pensioners should do
Those affected should contact HMRC for a refund. They will continue to pay tax as normal.
