HMRC has confirmed it is issuing refunds after errors made by the Department for Work and Pensions (DWP), with around 3.2 million state pensioners affected by incorrect tax calculations.
In its annual report, HMRC admitted that an incorrect figure had been applied in end-of-year PAYE reconciliations. The error affected Self Assessment pre-population from 2010 to 2011, dating back to 2015 to 2016, and Simple Assessment from 2016 to 2017. This resulted in a difference between the correct State Pension figure for tax purposes and the figure actually used in the calculation, HMRC said.
Who is affected by the tax error
HMRC said overcharges reflect the marginal rate of tax on the difference between one week of State Pension at the previous and uprated rates. As a result, around 1.4 million PAYE customers paid too much tax, along with up to 955,000 Self Assessment customers, and around 760,000 Simple Assessment customers.
In total, 3.2 million are affected. These state pensioners were given an incorrect State Pension figure and may have paid too much tax.
Average losses for pensioners
For a person who receives the full basic State Pension, the average loss in any one tax year since 2021 to 2022 for a basic rate taxpayer is estimated to be £1.76. Meanwhile, it is £2.30 for those who receive the full new State Pension, the HMRC report said.
Antonia Stokes, of the Low Incomes Tax Reform Group, 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. HMRC should ensure they make this process as easy as possible and that they draw attention to its existence so that people can check entitlement for earlier years."
How HMRC is correcting the issue
HMRC is proactively identifying affected cases and making corrections through PAYE coding adjustments, credits to Self Assessment accounts or, where required, other methods such as payable orders.
John-Paul Marks, the chief executive of HMRC, said: "If customers believe they were affected in earlier years and have the necessary evidence, they can ask HMRC to review their position. These requests will be considered on a case-by-case basis."
