HMRC Admits Decade-Long Tax Error Affecting Millions of Pensioners
HMRC has been overtaxing state pensioners for ten years due to a calculation error, affecting up to 8.7 million individuals. The mistake resulted in an average overcharge of £5 per person, potentially generating an extra £43.5 million in revenue last year. The error was first spotted by pensioners on their tax bills as far back as 2016.
How the Error Occurred
The tax authority incorrectly calculated pensioners' tax bills by using 52 weeks of state pension payments at the current year's rate. The correct method should have used one week at the lower rate from the previous year to account for the gap between the start of the new tax year and when pensioners receive their state pension payments. For the 2025/26 tax year, the new state pension was £230.25 per week, up from £221.20 in 2024/25. This meant state pension income was recorded as £9.05 higher than it should have been, leading to additional tax of £1.81 for basic-rate taxpayers, £3.62 for higher-rate taxpayers, and £4 for additional-rate taxpayers.
HMRC Response and Apology
An HMRC spokesperson said: “We apologise to those affected by this error and are working at pace to fix the issue, although the impact is small with the difference in tax owed being around £5 in most cases.” HMRC stated it has been working since last year to rectify the problem and aims to introduce a fix later this summer. The Sunday Times reported that the issue was raised with HMRC in August, but it did not alert the Department for Work and Pensions until October.
Political Reactions
Conservative MP Richard Holden raised the error in a parliamentary question to Dan Tomlinson, exchequer secretary to the Treasury and minister responsible for HMRC. Tomlinson responded that most pensions pay “the right amount of tax in real time.” Sir Mel Stride commented: “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.”
