HMRC has been overtaxing pensioners for a decade- have you been affected?
Two weeks ago it was revealed that HMRC has been overcharging millions of pensioners on their tax bill for at least a decade.
The taxman had knowingly overcharged taxpayers in receipt of their state pension because of an error in how their income was calculated each year, increasing the bills of up to 8.7m pensioners by an average of £5, according to reports in The Times.
This error left the taxman netting up to £43.5m last year, but older Brits spotted errors on their tax bills as far back as 2016, with former HMRC chief executive Jim Harra, who stepped down in April, being made aware of the problem two years ago.
But the government department failed to inform the public of the error or make any effort to issue refunds, despite beginning a formal investigation.
The body is now working to figure out how many people have been affected by the error but it has not yet informed those affected or issued automatic refunds.
Who was affected?
Pensioners were overcharged because HMRC failed to account for the annual rise in the state pension, which is paid gross but subject to income tax.
The state pension rises each April under the triple lock, which guarantees an increase of 2.5 per cent, inflation or average earnings growth depending on which is highest.
The flawed calculations impacted both pensioners paying income tax through self assessment and those still in employment who pay tax through pay as you earn (PAYE).
Those affected have seen the scale of overtaxation become larger each year off the back of the triple lock.
By how much?
The state pension increased to £230.20 a week for the 2025/26 tax year, up from £221.20 the prior year, leaving state pension income incorrectly recorded as £9.05 higher.
The hike means a basic-rate taxpayer would incur a further £1.80 in tax, while a higher-rate taxpayer would pay an additional £3.60.
Additional rate taxpayers would pay £4, but HMRC said its records showed those affected paid £5 on average.
HMRC’s guidance states that pensioners’ tax liabilities should be calculated using 51 weeks of the current tax year’s state pension and one week of the previous year’s lower rate.
This is in order to account for a small window between the start of the new tax year on April 5 and when their state pension is paid for the first time after that date.
But HMRC calculates income using 52 weeks of state pension payments at that year’s higher rate, using information provided by the Department for Work and Pensions (DWP) rather than its own.
HMRC are expected to fix the problem later this summer, saying it was “working at pace to fix the issue”, but argued that the “impact is small” for individuals.