HMRC is manually checking more than 100,000 tax calculations because of a flaw dating back five years that still has not been fixed. The issue relates to so-called beneficial ordering tax rules, where the personal allowance is allocated across different types of income in whichever combination results in the lowest possible tax bill for the taxpayer. A long-standing computer issue means this has not always happened, and some taxpayers complained of being overcharged.
Review of 107,000 calculations
The Telegraph reports that HMRC was first aware of the computer flaw in 2021, and the tax office is now reviewing 107,000 tax calculations from the 2025/26 tax year. A HMRC spokesperson said not all of these people will have been overtaxed, and those affected will be issued a refund. Those with tax bills that do need to be updated will have the most beneficial ordering applied in order to receive the correct tax calculation.
Beneficial ordering rules primarily impact taxpayers with multiple sources of income, such as earned income, pensions, savings, or property rental income.
Experts advise checking calculations
Sarah Coles, head of personal finance at AJ Bell, said it is worth taxpayers checking calculations themselves for any errors. She said: "When you make money from a variety of things – including savings and dividends – HMRC is meant to use your personal tax allowances in the way that means you’ll pay the least tax, so it would set things with higher tax rates against your personal allowance first."
"The most beneficial order will depend on how much you make from various sources – plus the tax rates you pay. Unfortunately, the system doesn’t always get it right. HMRC has known about the problem since 2021, and yet it’s still getting things wrong."
Future changes and refunds
HMRC said it estimates the number of cases requiring manual review to fall to around 20,000 from April 2027 when new rules come into force. Tax rates for property, savings and dividend income will rise, and reliefs and allowances will only be applied to these after they have been added to other sources of income.
An HMRC spokesperson said: "We take extensive action to identify the minority of customers who may be affected and update their tax calculations as needed to ensure they pay the right tax. The number of calculations requiring a manual check is expected to fall to around 20,000 next year."
It comes after Martin Lewis' Money Saving Expert this week urged anyone who has just finished a summer job to check their payslip in case they have paid too much tax. Most people can earn up to £12,570 a year before they start to pay income tax, and the most common tax code which shows this personal allowance is 1257L. This normally applies if you have one source of income. But if you started a new job and did not provide a P45 or a starter checklist form in time, you may have been placed on an emergency tax code.
