Around 3.2 million people are set to receive tax repayments from HM Revenue and Customs (HMRC) after an error resulted in incorrect State Pension figures being used to calculate some tax bills.
HMRC estimates that repayments will total around £19.3 million, equivalent to an average of roughly £6 for each person affected, although the actual amount individuals receive will depend on their circumstances. The tax authority has confirmed it will identify affected customers and correct their tax positions for recent years without requiring them to make a claim.
The exercise will cover tax years from 2020/21 onwards. Most corrections and repayments are expected to be completed during the 2026/27 financial year.
How did the State Pension tax error happen?
The problem arose because of the way annual State Pension increases interact with the tax year. State Pension rates normally increase in April, but the pension payment week and tax year do not align exactly.
The correct annual figure used for tax purposes therefore includes one week of State Pension at the previous rate and 51 weeks at the newly increased rate. However, incorrect calculations used the higher State Pension rate for all 52 weeks, resulting in taxable State Pension income being overstated for some people.
HMRC said any resulting overcharge reflects the person's marginal tax rate applied to the difference between one week of State Pension at the previous rate and one week at the increased rate. While the amount involved for an individual year can therefore be relatively small, the error was repeated across large numbers of tax records.
How will HMRC make the repayments?
People affected from 2020/21 onwards should not need to submit a claim for the money they are owed. HMRC will proactively identify affected cases and make corrections through PAYE coding adjustments, credits to Self Assessment accounts or, where required, other methods such as payable orders.
The department expects the majority of the work to be completed during the current 2026/27 financial year. HMRC implemented a change on August 25 to ensure future annual PAYE and Simple Assessment reconciliations use the correct State Pension figures. It is also correcting pre-populated State Pension figures for Self Assessment customers for the 2025/26 tax year.
What if you paid too much tax before 2020/21?
The automatic correction exercise only goes back to the 2020/21 tax year, despite the underlying PAYE problem dating back to 2010/11. HMRC said 2020/21 is the earliest year for which the available data allows it to reliably and efficiently identify and correct affected cases automatically.
However, people who believe they paid too much tax because of the same problem in an earlier year may still be able to have their case considered. HMRC has said customers who believe they were affected before 2020/21 and have the necessary evidence can ask it to review their tax position.
These requests will be considered individually. People who have paid too much tax may normally receive a P800 tax calculation or Simple Assessment letter from HMRC explaining their position and how any refund will be made.
