HMRC apologises for tax overpayment hitting 1.4m pensioners

Jacob Grattage, Reporter, Business & Accountancy Daily. Croner.

‘Historical error’ in 2024-25 tax year means up to 3.1 million pensioners could have been overcharged tax, triggering apology from HMRC chief.

In a letter to the influential Public Accounts Committee (PAC), the chief executive of HMRC, John-Paul Marks (pictured), admitted a ‘historical error in the taxable state pension amounts used in some tax calculations’.

But the problem is not yet fully resolved and Marks told the PAC that HMRC ‘was working at pace to put in place a solution’.

However, the loss to taxpayers was small with an estimated £2.30 a tax year at most depending on which pension they were paid.

Marks said HMRC identified it had used an ‘incorrect state pension figure’ in PAYE end-of-year reconciliations, which ‘fed through into self-assessment pre-population information and simple assessment calculations’.

‘This has resulted in a difference between the correct state pension figure for tax purposes and the figure actually used in the calculation,’ Marks told the committee.

The immediate overpayment issue affected 1.4m pensioners in PAYE, while a further 1.8m people of pension age in self assessment and simple assessment may also have had their tax liability incorrectly calculated as a result of the error.

Marks confirmed: ‘In the 2024-25 tax year, around 1.4m pensioners in PAYE paid too much tax because of this issue.

‘In addition, up to 955,000 pensioners in self-assessment and around 760,000 pensioners in simple assessment had an incorrect state pension figure used in their tax calculations and may, as a result, have paid too much tax.’

Marks continued: ‘I apologise for this error and especially to those pensioners who have been affected.

‘I would like to reassure the committee that HMRC is taking this issue very seriously and we are working at pace to put in place a solution.’

In the letter Marks did stress that ‘for the majority of pensioners these differences do not result in a change to the tax collected or repaid because they fall within HMRC’s longstanding administrative tolerances’.

‘The existence of a discrepancy in the underlying calculation does not necessarily mean that a customer has actually paid the wrong amount of tax overall,’ he added.

Marks explained: ‘For basic rate taxpayers, the average loss in any one tax year since 2021-22 is estimated to be £1.76p where they receive the full basic state pension and £2.30 where they receive the full new state pension.’

An internal audit review of why the issue occurred is underway at HMRC ‘to establish a full account of the history and causes of this issue, to ensure lessons are learned and fully applied’.

Marks stressed: ‘The review will also identify what may need to change to ensure issues of this kind are surfaced in a timely and appropriate manner in future. I will ensure that its recommendations are implemented.’

Before signing the letter off, Marks finished: ‘I apologise again for this error and to those pensioners who have been affected. I will write again to the committee once the fix has been implemented and with the conclusions of the internal audit review later in 2026.’

JP Marks letter to Public Accounts Committee

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