HMRC routinely overtaxed pensioners for a decade

Sunday, June 21, 2026

HM Revenue & Customs has been overtaxing nearly 8.7 million pensioners for up to a decade due to a miscalculation in state pension income, resulting in an estimated £356 million collected in excess tax. The error, which HMRC only acknowledged after repeated complaints, has triggered demands for refunds and greater transparency, though the agency has not yet outlined a full repayment plan.

HM Revenue & Customs (HMRC) has been overtaxing millions of pensioners for nearly a decade due to a longstanding error in the way state pension income was calculated for tax purposes. The issue, which surfaced publicly last week, stems from HMRC’s failure to correctly adjust pension income in line with annual increases.

The problem was first identified by pensioners as early as 2016, with formal complaints raised between 2019 and 2020. Despite these concerns, the tax authority did not notify the public or proactively issue refunds. Sir Jim Harra, who served as HMRC chief executive until April 2025, was informed of the problem in 2024 following a taxpayer’s direct communication highlighting the agency's unwillingness to resolve the matter.

The core of the error lies in HMRC’s calculation method. Official guidance dictates that pensioners’ taxable income should be based on 51 weeks of the current tax year’s pension rate plus one week at the previous year’s, lower rate. In practice, however, HMRC applied the higher current rate uniformly across 52 weeks, using data from the Department for Work and Pensions. This miscalculation led to pensioners being overcharged on income tax.

Estimates suggest that the tax authority may have collected an excess £356 million due to this error, affecting approximately 8.7 million pensioners in the most recent tax year alone. The issue impacts both individuals paying through self-assessment tax returns as well as those receiving Pay As You Earn (PAYE) deductions while still employed.

The revelation has prompted calls from political figures and advocacy groups for greater transparency from HMRC and the repayment of the overcharged funds. Sir Mel Stride, shadow chancellor, described the situation as “extremely concerning.”

In response, HMRC has expressed regret and stated that it is working urgently to rectify the fault. Pensioners who suspect they have been overtaxed are encouraged to contact HMRC directly to seek refunds. The agency has yet to provide a full timeline for refund distribution or confirm the total extent of the overpayments.