HMRC may owe millions of pensioners money after a tax calculation error that went undetected for months. Up to 8.7 million pensioners may have paid too much tax last year, with each overpaying an average of £5.
How the Error Occurred
The state pension is paid gross, but recipients must pay income tax on it. HMRC calculates the tax owed based on 52 weeks of the current year's pension rate, but the correct calculation should use 51 weeks of the current rate and one week of the previous year's rate. This discrepancy meant that after the new state pension for 2025/26 of £230.25 per week was introduced (up from £221.20), income was recorded as £9.05 per week higher than it actually was, leading to an average overpayment of £5 in tax.
Timeline of Events
The issue was flagged in August last year by Tory MP Richard Holden, but it 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 automatic refunds are not being issued at present.
Official Response
An HMRC 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 reveal how long the problem will take to fix and to ensure such errors do not happen again.
What Pensioners Should Do
Affected individuals can contact HMRC to amend any incorrect figures of state pension and request a refund. They will continue to pay tax as normal in the meantime.
