HMRC admits overtaxing 1.4 million pensioners after 15-year error

The mistake came to light after an investigation by Telegraph Money, prompting HMRC chief executive John-Paul Marks to apologise in a letter to MPs.

The error dates back to a change made to HMRC's systems in 2010 and has affected pensioners since the 2010-11 tax year.

"I apologise for this error and especially to those pensioners who have been affected," Mr Marks said. "I know that any shortfall matters, particularly to customers on fixed or limited incomes."

During the 2024-25 tax year alone, HMRC collected more than £2million in extra tax from those affected. The average overpayment was around £2 per person.

The number of pensioners affected has risen sharply over recent years. Around 1.4 million pensioners paying tax through PAYE were overtaxed in 2024-25, up from 1.17 million the previous year and 762,000 in 2022-23, according to Mr Marks's letter to the chair of the Public Accounts Committee.

The problem was not limited to pensioners paying tax through PAYE.

HMRC said up to 955,000 pensioners who completed self assessment tax returns and a further 760,000 using the simple assessment system may also have paid too much tax during 2024-25.

This happened because HMRC used the wrong State Pension figures when working out how much tax they owed.

The mistake centres on how taxable State Pension income should be calculated.

Under HMRC's own guidance, the calculation should use 51 weeks of the current year's State Pension rate and one week at the previous year's lower rate.

This is because the tax year starts before the new State Pension rates come into effect on the following Monday.

However, HMRC's system did not apply this calculation correctly, leading to some pensioners being overtaxed.

Instead, the tax office has been applying 52 weeks at the higher rate throughout. This discrepancy stems from a PAYE system alteration implemented in 2010, Mr Marks explained in his letter.

Those in PAYE may have faced overcharges for some or all years since 2010-11, whilst self-assessment users have been affected since 2015-16 and simple assessment since 2016-17.

Tax experts have criticised the revenue service's handling of the situation. Mike Warburton, The Telegraph's tax columnist who first revealed the issue in May, said: "There seems to be a state of chaos in HMRC over this issue and it is pensioners who are being left confused and overtaxed."

Jon Greer of investment firm Quilter noted that whilst individual amounts appear modest, the sheer volume of affected people means government coffers may have been unfairly boosted.

Crucially, HMRC has not committed to automatic refunds, citing administrative tolerances. Pensioners believing they have overpaid must contact the tax office directly to seek reimbursement.

Mr Marks confirmed the error would be rectified this summer, ensuring 2025-26 tax calculations remain unaffected.