HM Revenue and Customs (HMRC) is repaying around 3.2 million pensioners after a widespread tax calculation error dating back to 2010. The tax authority has confirmed it is "taking action" to address the errors, with the total cost to the government standing at £19.3 million.
What Went Wrong
The blunder involves incorrect Department for Work and Pensions (DWP) figures applied to tax records. HMRC incorrectly calculated tax using 52 weeks of the higher State Pension rate instead of accounting for the one transition week that should have been billed at the previous year's lower rate.
The error impacted roughly 1.4 million PAYE customers, 955,000 Self Assessment customers, and 760,000 Simple Assessment customers. HMRC said in a report the error has affected Self Assessment pre-population since 2010 to 2011.
Impact on Pensioners
HMRC confirmed the blunder resulted in a discrepancy between the correct State Pension figure for tax purposes and the figure actually used in the calculation. Where an overcharge has occurred, it reflects the marginal rate of tax on the difference between one week of State Pension at the previous and uprated rates.
According to HMRC, the average annual loss since the 2021 to 2022 tax year is estimated at £1.76 for a basic rate taxpayer receiving the full basic State Pension. Meanwhile, those receiving the full new State Pension lost an average of £2.30.
Repayment Process
HMRC said it will take a proactive approach in identifying affected cases and implementing corrections through PAYE coding adjustments or credits to Self Assessment accounts. Where necessary, alternative methods such as payable orders will be used.
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."
John-Paul Marks, HMRC's chief executive, 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."
