The tax authority has admitted a calculation error
Millions of pensioners have been overcharged income tax by HMRC.
The tax authority has admitted a calculation error means some retirees have been paying too much tax on their state pension. The average overpayment is small at just £5 each. but the number of people involved means the total runs to tens of millions of pounds. The mistake could have affected as many as 8.7 million pensioners who pay income tax, potentially leaving HMRC with an extra £43.5million collected from retirees last year alone.
The error centres on the way HMRC calculates taxable state pension income after annual increases under the triple lock.
Under official rules, pensioners’ tax liabilities should be based on 51 weeks of the current year’s state pension rate and one week at the previous year’s rate, reflecting the timing of payments around the start of the tax year.
Instead, HMRC has been using figures supplied by the Department for Work and Pensions that assume pensioners receive 52 weeks at the new higher rate. As a result, pension income has been overstated and tax bills inflated.
For the 2025-26 tax year, the full new state pension rose from £221.20 a week to £230.25. That difference means pension income was recorded as £9.05 higher than it should have been.
While the individual impact is relatively small, campaigners say the principle is significant because millions of pensioners may have been affected. HMRC acknowledged the problem after it was raised by Conservative MP Richard Holden last year.
In a statement, a spokesman said: “We apologise to those affected by this calculation error and are working to fix the issue, although the impact is small with the difference in tax owed being around £5 in most cases.”
The tax authority is understood to be aiming to resolve the issue this summer. However, critics have questioned why the problem was not addressed sooner.
The Sunday Times reported that HMRC was first alerted to the issue in August last year but did not inform the DWP until October.
Sir Mel Stride, the Shadow Chancellor, said: “If HMRC have been charging millions of pensioners too much tax then questions need to be answered and the matter must be urgently put right. Ministers need to ascertain what has happened and what action is being taken to ensure these sorts of errors do not happen again.”
Former pensions minister Sir Steve Webb said it was “remarkably careless” for pensioners to be taxed using the wrong figures.
He said: “Most people will not have a clue as to the rules around the taxation of the state pension but you would hope that HMRC would know and apply the rules correctly. Although the sums involved per person are small, it is quite shocking that so little care seems to have been taken to get this right in the first place, rather than fix it after people have been over-taxed.”
The row is likely to fuel wider concerns over HMRC’s performance. The tax authority has faced repeated criticism over customer service standards, with MPs previously accusing it of “damaging trust in the tax system” amid long waiting times and difficulties contacting advisers.
