HMRC has apologised after admitting it overcharged 1.4 million pensioners due to a system change that occurred in 2010. The tax office revealed that pensioners have been overtaxed since the 2010/11 tax year, with the issue worsening in recent years.
Scope of the Error
HMRC chief executive John-Paul Marks wrote a letter to MPs apologising for the mistake. He stated that around 1.4 million pensioners in PAYE paid too much tax in 2024/25, up from 1.17 million in 2023/24 and 762,000 in 2022/23. Additionally, up to 955,000 pensioners in self-assessment and 760,000 in simple assessment may have overpaid because the wrong state pension figure was used in HMRC's calculations.
Impact on Pensioners
The overpayment amounts are relatively small per person. Basic rate taxpayers receiving the full basic state pension were overcharged an average of £1.76 per year between 2021/22 and 2024/25, while those on the full new state pension overpaid £2.30 annually. However, the cumulative effect on government coffers is significant, with Mike Warburton, The Telegraph's tax columnist, noting: 'There seems to be a state of chaos in HMRC over this issue, and it is pensioners who are being left confused and overtaxed.'
Repayment Process
Jon Greer of Quilter commented: 'While the amounts involved appear relatively small at an individual level, the fact it has affected so many people means it may have unfairly topped up government coffers.' He added that HMRC's solution falls short of automatic repayment, meaning pensioners must contact HMRC directly to reclaim their money. HMRC says it is working on a solution to prevent recurrence but has not committed to automatic refunds.
Official Apology
Mr Marks said: 'I apologise for this error and especially to those pensioners who have been affected. I know that any shortfall matters, particularly to customers on fixed or limited incomes. I would like to reassure the committee that HMRC is taking this issue very seriously and we are working at pace to put in place a solution.' An HMRC spokesman added: 'We’re confident most state pensioners won’t be affected, and for those that are, the impact is small, with the difference in annual tax paid only a few pounds in most cases.'
