Millions of people could be owed money from HMRC after a tax calculation error. The department hopes to resolve the issue by this summer.
What happened?
A blunder by HMRC may have led to millions being overcharged on their tax bills. The department has started identifying those affected. 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."
While the error resulted in an overcharge of about £5 per person, an estimated 8.7 million people were impacted. This means HMRC could have collected up to £43.5 million more than it should have last year.
Who could be affected?
The error impacted people receiving state pension who also pay income tax through self-assessment or remain employed and pay tax via PAYE. HMRC is working to pinpoint exactly who was affected and has not yet begun issuing refunds.
The shadow chancellor has called on HMRC to disclose the full extent of those impacted and start reimbursing the overcharged.
What went wrong?
State pension is taxable, but because it rises each April due to the Triple Lock mechanism, the tax rate varies. Typically, there is a brief period between the new tax year and when a person receives their updated state pension amount.
To compensate, tax owed is supposed to be calculated using 51 weeks of the new state pension rate and one week at the old rate, according to HMRC guidance. However, the mistake meant some pensioners' tax was calculated using 52 weeks of the new rate, leading to an additional £5 in tax.
Sir Mel Stride, 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."
Dan Tomlinson, Exchequer Secretary to the Treasury, confirmed that "most" pensioners pay the correct tax but 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."
