Millions of Britons are understood to have been overtaxed on their state pension payments by HMRC
HM Revenue & Customs (HMRC) has issued a formal apology to millions of pensioners who were charged excessive tax due to calculation mistakes stretching back more than 15 years.
John-Paul Marks, who leads the tax authority as chief executive, acknowledged the errors in how HMRC determined income levels for state pension recipients.
Mr Marks said: "I apologise for this error and especially to those pensioners who have been affected. I know that any shortfall matters, particularly to customers on fixed or limited incomes."
The scale of the problem is substantial, with as many as 3.1 million state pensioners who earn enough to owe income tax potentially facing overcharges during the 2024-25 tax year alone.
Of these affected individuals, approximately 1.4 million were overtaxed through the PAYE system. An additional 1.7 million pensioners using self-assessment and simple assessment methods may also have been charged incorrectly.
The root cause lies in HMRC's failure to properly account for annual state pension increases, which occur each April under the triple lock guarantee.
This mechanism ensures pensions rise by whichever is greatest: inflation, average earnings growth, or 2.5 per cent. The technical blunder originated from a PAYE systems modification implemented in 2010, Marks explained in correspondence with MPs.
Under HMRC's own rules, pension tax calculations should incorporate 51 weeks at the current year's state pension rate combined with one week at the previous year's lower amount..
This accounts for the brief gap between the tax year commencing on April 5 and when pensioners first receive their payment after that date.
Instead, the tax office's systems erroneously applied 52 weeks at the higher rate. According to HMRC's internal estimates, this miscalculation has generated approximately £18 million for the authority since 2021.
The tax authority has been aware of this issue since at least 2019, yet only now has it publicly acknowledged the problem or suggested potential refunds.
Mr Marks, who succeeded Sir Jim Harra in April last year, attributed the delay to technical complexity.
He explained: "The complexity of the interaction between the Department for Work and Pensions (DWP) state pension data, PAYE end-of-year reconciliation, simple assessment and self-assessment pre-population means that developing a solution has taken until now, and I apologise that this was not completed sooner."
Following this scandal, which was originally reported by The Sunday Times, HMRC is developing a fix for this summer to correct future calculations.
The average overpayment for basic-rate taxpayers since 2021 stands at £1.76 for those receiving the full basic state pension and £2.30 for full new state pension recipients.
