HMRC is correcting a tax calculation error that could have left around 3.2 million State Pension recipients paying more tax than they should have. The tax authority has acknowledged that incorrect State Pension figures were used in certain tax calculations, affecting people paying tax through Pay As You Earn (PAYE), Self Assessment and Simple Assessment.
Error dates back several years
According to HMRC’s annual report, the issue dates back several years, with errors affecting PAYE reconciliations since the 2010/11 tax year, Self Assessment pre-population since 2015/16 and Simple Assessment since 2016/17. The mistake involved a discrepancy between the correct State Pension amount used for tax purposes and the figure included in the calculation.
HMRC estimates that around 1.4 million PAYE customers were affected, alongside up to 955,000 Self Assessment customers and approximately 760,000 people using Simple Assessment. Combined, the figures amount to around 3.2 million people.
Potential overpayments vary
The amount potentially overpaid varies according to individual circumstances. HMRC estimates that, for each tax year since 2021/22, the average loss for a basic-rate taxpayer receiving the full basic State Pension was £1.76. For someone receiving the full new State Pension, the estimated figure was £2.30 per year.
The tax authority explained that where an overcharge occurred, it reflected the marginal rate of tax applied to the difference between one week of State Pension at the previous rate and its uprated rate. HMRC is now working to identify affected cases and correct the errors.
Corrections and repayments
Depending on how someone pays tax, adjustments could be made through PAYE tax codes, credits to Self Assessment accounts or alternative methods, including payable orders. However, not everyone affected will necessarily receive an automatic repayment covering every year in which an error occurred, Examiner Live reported.
Antonia Stokes, of the Low Incomes Tax Reform Group, said it was disappointing that HMRC’s data limitations prevented automated repayments further back, but welcomed the opportunity for taxpayers to seek corrections for earlier years.
She said: “It is disappointing that HMRC data constraints prevent automated repayments further back, but it is positive that taxpayers can take steps to rectify earlier years if they identify they have been overcharged.” Stokes added that HMRC should make the process as straightforward as possible and ensure pensioners know they can check whether they are entitled to money back.
John-Paul Marks, HMRC’s chief executive, said people who believe they were affected in earlier years could ask the department to review their circumstances. “If customers believe they were affected in earlier years and have the necessary evidence, they can ask HMRC to review their position,” he said. “These requests will be considered on a case-by-case basis.”
State Pension recipients who are concerned about their tax calculations should review relevant paperwork and contact HMRC if they believe they have paid too much tax. Those seeking a review of earlier tax years may need supporting evidence.
