HMRC is handing out £19.3 million in payments to millions of pensioners who were overtaxed on their state pension. Around 3.2 million pensioners will receive a refund, with individual payments varying.
It comes after the tax office acknowledged earlier this year a mistake in which it used incorrect state pension figures to calculate the tax owed by some pensioners.
Why the error occurred
The state pension increases every April, but the rise does not always take effect on the first day of the new tax year. The higher rate frequently comes into force a few days after April 6.
As a result, HMRC rules state that it should calculate your annual taxable state pension using one week at the previous tax year's lower rate and 51 weeks at the new higher rate.
However, the tax office has charged some pensioners the higher rate for the full 52 weeks, which means those affected will have paid more tax than they should have.
Refund details and timeline
HMRC is set to refund £19.3 million to around 3.2 million people, with the average repayment being around £6 per person, though it will vary between individuals.
The Government body will issue refunds automatically by adjusting PAYE tax codes, crediting self-assessment accounts or through other payment methods where necessary. It expects to complete this process during the 2026/27 financial year.
The Telegraph, which first uncovered the discrepancy, reports that the error dates back 15 years. However, the HMRC correction exercise will only go back as far as the 2020/21 tax year.
HMRC apology and next steps
HMRC advises anyone who believes they were affected beyond this date to get in touch, and these requests will be considered on a case-by-case basis.
In a letter to the Treasury Select Committee (TSC) last month, HMRC chief executive John-Paul Marks said: "I am sorry that this error occurred and recognise the impact on affected customers."
"As set out in my earlier letter, we will also conclude an Internal Audit review, ensuring the lessons are identified and applied in future."
The state pension increases annually in line with the triple lock pledge, which guarantees it rises by whichever is highest out of inflation, wages or 2.5%.
Fresh figures reveal that average wage growth, including bonuses, stood at 3.9% in the three months to July. By comparison, inflation currently sits at 3.1%.
The new state pension is presently worth £12,547.60 a year but would increase to £13,036.40 if a rise of 3.9% is applied. This would also take the state pension above the £12,570 tax-free allowance, which represents the amount you can earn each year before becoming liable for tax.
The Treasury has confirmed that those whose sole income is the state pension "without any increments" will not be required to pay income tax - though it has yet to clarify precisely how this will work.
