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HMRC staff will manually check thousands of potentially incorrect tax bills

More than 100,000 taxpayers may have been charged too much tax because of an HMRC software fault that was first identified five years ago but has still not been fixed.

HMRC is manually reviewing 107,000 tax calculations from the 2025-26 tax year after taxpayers complained that they had been overcharged.

The problem is caused by a long-running fault in HMRC's computer system.

In some cases, the system does not correctly apply a person's tax-free allowances across different types of income, such as earnings, pensions, savings interest and dividends.

HMRC first acknowledged the fault in 2021 after taxpayers raised concerns about errors in their calculations.

However, the system has not been repaired, leaving staff to manually check thousands of potentially incorrect tax bills each year.

The problem is known as the "beneficial ordering" error and is one of several faults in HMRC's systems that can result in people paying more tax than they owe.

The best way to apply tax-free allowances depends on a person's individual finances.

For example, some taxpayers may save more money by using part of their £12,570 personal allowance against savings interest or dividend income instead of earnings from employment or a pension.

This is because savings interest receives different tax-free allowances depending on a person's income tax band, while dividends are taxed at different rates from other income.

The way a person's income is divided between these categories therefore affects how their allowances should be applied.

Tim Good, a tax expert and founder of trade publication AccountingWEB, was among the first to identify the problem. "This isn't always done correctly with HMRC's calculator," he said.

"I picked it up in 2021, but the system hasn't been corrected, so we still get these discrepancies to this day."

Experts also cautioned that some flawed calculations may never come to light.

Cases not flagged for manual review could still contain errors, but these would only be caught if the taxpayer spotted the mistake themselves.

Stefanie Tremain, of accountancy firm Blick Rothenberg, stressed that even small sums matter.

"We may not be talking about huge amounts but you don't know how much that money is worth to the person who is receiving it," Ms Tremain said.

"If it was the other way around, and the taxpayer owed HMRC, I don't think they would say not to worry about it they would want it."

HMRC has not yet completed its review of the 107,000 cases and could not confirm how many will ultimately require correction. Those found to be wrong will be manually adjusted before being sent to taxpayers.

A spokesman for the tax authority said: "We take extensive action to identify the minority of customers who may be affected and update their tax calculations as needed to ensure they pay the right tax.

"The number of calculations requiring a manual check is expected to fall to around 20,000 next year."

The anticipated reduction is linked to forthcoming changes in tax rates for property, dividends and savings income.

Under the new rules, allowances will only be set against these income types after they have first been applied to other sources of earnings.