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HMRC has admitted that a long-running error means as many as 1.4m pensioners may have paid the wrong amount of income tax on their State Pension.
The problem dates back to changes made to HMRC’s PAYE system in 2010. Since then, the department has been using an incorrect State Pension figure when calculating tax. The error also affects some self-assessment and simple assessment taxpayers.
Here, we explain what went wrong and how to work out if you’re affected.
What’s happened?
The wrong State Pension amount was used in some HMRC tax calculations. The error affected PAYE end-of-year tax checks and was also carried through into certain self assessment tax returns and simple assessments, which are tax bills HMRC sends to some people who don’t need to complete a tax return. As a result, some people’s tax bills may not have been calculated correctly.
According to HMRC, around 1.4 million pensioners paying tax through PAYE overpaid tax because of the issue during the 2024/25 tax year.
In addition, up to 955,000 pensioners who completed a Self Assessment tax return and around 760,000 people who received a Simple Assessment had an incorrect State Pension figure used in their tax calculations and may also have paid too much tax. The number affected in earlier tax years was lower.
Despite this, HMRC says most affected pensioners were only a few pounds out of pocket.
For example, HMRC calculates that the typical overpayment since the 2021/22 tax year has been around £2 per year for basic-rate taxpayers and roughly £4 per year for those paying higher-rate tax. However, the amount varies, and some people may have overpaid by a larger sum.
In a letter to the Chair of the Public Accounts Committee, John-Paul Marks, Permanent Secretary, 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.”
How do I know if I’ve been affected?
There’s currently no simple way to check whether you’ve paid too much tax because of this error. HMRC says it is still working on how it will identify everyone affected and correct their tax records.
If you’re concerned, you can compare the State Pension income shown on your tax records with the amount you actually received. However, because the error relates to the figures used within HMRC’s calculations, it may not always be obvious whether you’ve paid too much.
HMRC says it will provide more information about how affected taxpayers will be identified and any refunds issued once it has found a solution to the problem.
Joe Lytwyn, personal finance expert at credit card provider thimbl.com, said: “The most important thing is to review your tax information rather than assuming everything is correct. Check your latest tax calculation, look over your pension income and make sure the figures you’re being taxed on match your records.
“If something doesn’t look right, don’t ignore it. Contact HMRC and ask for an explanation. It might be nothing, but it’s always worth querying something that doesn’t add up.”
Do I need to do anything?
Most pensioners don’t need to contact HMRC yet, as the department has said it is working through how to correct the error and issue any refunds.
It has also pledged that steps have been taken to ensure people won’t continue to be affected by this issue. Mr Marks said: “I can confirm that we will deliver a solution this summer to correct future tax calculations. As well as preventing this error from recurring, the solution will ensure that the last tax year, 2025/26, is subject to the correct calculations for those in PAYE and simple assessment, and will enable HMRC to correct the returns for those who have already filed self-assessment returns for 2025/26.
“Alongside this, we are updating our customer guidance to explain the impact of this issue and to support customers who are concerned about how it may have affected them.”
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