HMRC to refund 3.2 million retirees over state pension error – check if you’re affected

HMRC letter Credit: Getty MILLIONS of pensioners are set to receive tax refunds after HMRC admitted it had been using the wrong state pension figures in some tax calculations. The error relates to the amount of state pension HMRC used when calculating how much income tax some pensioners owed. HMRC has now said around 3.2million people will receive repayments totalling £19.3million automatically. That works out at around £6 per person on average, although the exact amount will depend on an individual’s circumstances. Sign up for the Money newsletter Thank you! In a letter to the Treasury Select Committee (TSC) earlier this month, HMRC’s chief executive John-Paul Marks said the government will identify affected customers and automatically correct their tax positions. The exercise will cover errors dating back to the 2020-21 tax year, which HMRC said is the earliest point for which it has enough data to reliably identify affected cases. Repayments will be made through PAYE tax code adjustments, credits to Self Assessment tax accounts or, other methods where necessary. HMRC said it expects to complete the majority of corrections and repayments during the 2026-27 financial year. “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,” Mr Marks said. “I am sorry that this error occurred and recognise the impact on affected customers.” Most read in Money Steve Webb, former pensions minister and partner at LCP, said: “It is hard enough for citizens to understand the tax system, but in this case it looks as though HMRC didn’t know its own rules. “The trouble is, HMRC was pre-filling in people’s tax returns with the wrong figure, resulting in a small excess tax payment. If proper checks were done when these systems were set up, these errors would be spotted. “Instead there will have to be a huge bureaucracy to refund a few pounds each to millions of pensioners”. What happened? The error relates to a discrepancy in the state pension figures HMRC used to calculate how much income tax some pensioners owed. The state pension is taxable, although tax is not deducted directly before it is paid. Instead, HMRC usually takes account of someone’s state pension when working out the tax due on other income, such as earnings or a private pension. The state pension rate normally changes in April, but the increase does not always take effect on the first day of the tax year. For many pensioners, HMRC’s guidance says the taxable amount should therefore be based on one week at the previous year’s rate and 51 weeks at the new rate. But incorrect figures had been used in some tax calculations. According to The Telegraph, which first revealed the error, HMRC had in some cases been using 52 weeks at the new rate instead. That meant the taxable amount of state pension was recorded as slightly higher than it should have been, resulting in some pensioners paying more tax than they owed. The problem had affected tax calculations over a number of years. HMRC has now said it will automatically correct affected taxpayers’ records going back to the 2020-21 tax year, meaning most people affected during that period will not need to make a claim themselves. What happens now? HMRC said it has already made changes designed to stop the problem happening again. On August 25, it updated its systems so future annual tax reconciliations for PAYE and Simple Assessment customers use the correct state pension figures. These customers account for the “substantial majority” of those affected, according to HMRC. It also expects to correct pre-populated figures for Self Assessment customers who have not yet submitted their 2025-26 tax returns during September. Those who have already filed their return will have their position corrected afterwards. HMRC said this should resolve the issue for 2025-26 and prevent it from recurring in future. Do I need to make a claim? If you were affected from the 2020-21 tax year onwards, HMRC says you should not need to make a claim as it will identify affected taxpayers and correct their tax positions automatically. How you receive any money back will depend on how you pay tax. You may receive it through an adjustment to your PAYE tax code, a credit to your Self Assessment tax account, or another payment method. However, anyone who believes they were overtaxed before the 2020-21 tax year will need to contact HMRC themselves. They will need to provide evidence showing they were affected, and HMRC said these cases will be considered individually. That could include old tax calculations, pension statements or other records showing the amount of state pension used to work out their tax bill. HMRC is also carrying out an internal audit review into how the error happened and said it would make sure lessons were learned to prevent similar problems in future. HMRC has been contacted for further comment. Comment now