HMRC pensioner tax error: millions overcharged on state pension as refund questions mount

Up to 8.7 million retirees across the United Kingdom may have paid more income tax than they legally owed after HM Revenue and Customs applied an incorrect state pension figure to their tax calculations, with ministers now confirming they were aware of the discrepancy for at least a full year before the public was told, and with no system of automatic refunds yet in place for those affected. The error — which stems not from any fault in the state pension itself but from how HMRC converts annual pension income into a taxable figure — overstated many pensioners' income by £9.05 a year, translating into average overcharges of around £5 per person but, applied across millions of taxpayers, a sum the Treasury is estimated to have collected in the tens of millions of pounds, with one analysis tracked by The WP Times placing the figure at roughly £43.5 million in a single tax year alone.

The controversy has sharpened over recent days because the people who should most easily have caught the mistake — pensioners themselves — were among the least equipped to do so. Unlike employees, who receive a P60 setting out their income, recipients of the state pension get no equivalent annual statement from the Department for Work and Pensions, leaving many with no straightforward way to check whether the figure HMRC used against them was correct. The result, campaigners argue, is a situation in which a government calculation error went unnoticed for years and the burden of identifying and correcting it has fallen on retirees rather than the tax authority that made it.

What exactly did HMRC get wrong

At the centre of the dispute is a narrow but consequential question of timing. HMRC's own published guidance states that the taxable portion of the state pension should be worked out using 51 weeks at the current tax year's rate and one week at the previous year's lower rate. That single-week adjustment exists for a practical reason: the tax year begins in early April, but pensioners do not receive their newly uprated payment until slightly later, so for one week of the year they are still being paid at the old rate.

Instead of following its own rule, HMRC calculated many pensioners' income using a full 52 weeks at the higher, current-year rate — relying on data supplied by the DWP rather than on its own published method. The mismatch inflated recorded annual pension income and, with it, the tax due.

The financial mechanics are precise. For the 2025/26 tax year, the new state pension rose to £230.25 a week, up from £221.20 the year before, under the triple lock guarantee that increases payments by the highest of average earnings, inflation or 2.5 per cent. Applying the wrong number of weeks at the higher rate overstated annual income by £9.05. That fed through to overcharges of roughly £1.81 for basic-rate taxpayers, £3.62 for higher-rate payers and around £4 for additional-rate taxpayers.

How long has this been going on?

The official acknowledgement covers a defined recent window, but the suspected timeline is considerably longer. Pensions minister Torsten Bell has stated the Government became aware of the problem in June of the previous year, describing it as a calculation error affecting "a small sub-set" of state pension recipients. Yet a former HMRC employee who first identified the discrepancy believes the same flawed method may have been in use since the 2023/24 tax year — and tax campaigners have pressed HMRC to state plainly how far back the overcharging actually goes, how many people were affected in total, and whether refunds will be issued proactively.

The chronology of who knew what, and when, has become its own line of criticism:

• August (previous year): The issue was formally raised with HMRC, and Conservative MP Richard Holden put a parliamentary question to the Treasury minister responsible for HMRC.
• September (previous year): Exchequer secretary Dan Tomlinson told Parliament that most pensioners pay "the right amount of tax in real time," suggesting affected individuals could call HMRC to amend incorrect figures.
• October (previous year): HMRC alerted the DWP to the problem — roughly two months after first being made aware.
• May (this year): Tax expert Mike Warburton publicly highlighted the issue, bringing it into wider view.
• Recent weeks: Incorrect figures were still appearing on pre-populated self-assessment tax returns for 2025/26 as recently as last month, and ministers confirmed the matter remains unresolved.

The gap between internal awareness and public notification — at least a year by ministers' own admission — is the point on which much of the political pressure now rests.

Who is affected, and how much money is involved?

Up to 8.7 million pensioners who pay income tax on their state pension fall within the potentially affected group. That includes two distinct categories: those who settle their tax through self-assessment, and those still in employment or otherwise taxed through Pay As You Earn (PAYE), whose state pension is reconciled via their tax code and the year-end P800 calculation.

The small individual sums have prompted some to question whether a £5 discrepancy merits national attention. Campaigners counter that the principle, not the pound figure, is what matters — particularly for retirees on low fixed incomes, for whom even modest amounts taken in error represent money the tax authority had no legal right to collect.

What politicians and experts are saying

The response from across the political and advisory spectrum has hardened, with criticism focused less on the size of the error than on how it was handled.

Shadow chancellor Sir Mel Stride said that if HMRC has been charging millions of pensioners too much tax then questions need to be answered and the matter urgently put right, adding that ministers need to establish what happened and what action is being taken to prevent a recurrence (The Times, London).

Sir Mel Stride separately observed that although the per-person sums are small, it is striking how little care appears to have been taken to get the calculation right in the first place, rather than fixing it after pensioners had already been over-taxed (Westminster).

Tax expert Mike Warburton, who first drew public attention to the problem in May, said the episode showed two government departments at odds with each other and potentially the entire pensioner population being overcharged, stressing that for people on relatively low incomes this is money they could have spent that HMRC was not legally entitled to hold (interview, this year).

For its part, HMRC has apologised to those affected and said it is working at pace to fix the issue, while maintaining that the impact is small with the difference in tax owed amounting to around £5 in most cases. The authority expects to resolve the problem during the summer.

How do I check whether I've been overcharged

For pensioners who want to verify their own position, the starting point is to compare the actual state pension payments received during the tax year against the figure HMRC has used for tax purposes. Because there is no P60 for state pension income, this requires a little assembly of records.

1. Gather your payment records. Add up the state pension actually paid into your account across the tax year. Bank statements are the most reliable source.
2. Find your tax coding notice. Your PAYE coding notice shows how HMRC has calculated your taxable income and will reveal any state pension figure being used.
3. Check your P800. If you are a PAYE customer, the P800 end-of-year calculation sets out what HMRC believes you owed. Compare the state pension element against your own total.
4. Review your self-assessment return. If you file self-assessment, examine the pre-populated state pension figure — these are the entries that have, in some cases, carried the wrong number.
5. Flag any mismatch. If the figure used exceeds what you actually received, that is the discrepancy at issue.

How do I get a refund?

This is where the burden shifts onto pensioners, because there is currently no automatic reimbursement and the error does not qualify for the usual treatment of simply reducing next year's bill.

• Self-assessment customers can manually correct the pre-filled state pension figure on their return so that it reflects the income they actually received.
• PAYE customers who dispute the amount shown on their P800 must contact HMRC directly to have their records updated, rather than waiting for a correction to arrive.
• In all cases, the route to money back runs through HMRC itself — affected pensioners must get in touch to claim, and keeping evidence of actual payments received will make that process considerably smoother.

Why does a £5 error matter so much?

The disproportion between the individual sum and the volume of attention is, in many ways, the story. Antonia Stokes, senior manager at the Low Incomes Tax Reform Group, has noted that concerns about how the annual taxable state pension is calculated are long-standing rather than new — pointing to a structural weakness rather than a one-off slip.

Three threads explain why the issue resonates beyond its modest headline figure. First is scale: a £5 error multiplied across up to 8.7 million people becomes a material sum collected without legal entitlement. Second is transparency: ministers' admission that the problem was known for at least a year before pensioners were told raises questions about disclosure and the absence of proactive refunds. Third is fairness of effort: with no P60 for state pension income, retirees were structurally ill-placed to catch a government mistake, yet are now expected to identify and correct it themselves.

Frequently asked questions

Is the state pension itself being paid incorrectly?
No. The payments are correct. The error lies in how HMRC converted that pension income into a taxable figure, using 52 weeks at the new rate instead of 51 weeks at the new rate and one at the old.

How much could I be owed?
For most affected pensioners the figure is around £5, varying by tax band — roughly £1.81 at basic rate, £3.62 at higher rate and about £4 at additional rate.

Will HMRC refund me automatically?
Not at present. Refunds require pensioners to contact HMRC or correct their self-assessment figures directly.

How far back does it go?
Officially the recent period is acknowledged, but a former HMRC employee who identified the issue believes it may date back to the 2023/24 tax year. HMRC has been pressed to confirm the full timeline.

When will it be fixed?
HMRC says it is working to resolve the issue over the summer.

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