HMRC is set to distribute approximately £19 million in refunds to state pensioners who were overcharged income tax due to a calculation error that persisted for more than 15 years. The repayments, averaging roughly £6 per individual, will be backdated to the 2020/21 tax year, following an investigation by The Telegraph that exposed excessive charges dating back to 2010.
Nature of the tax calculation error
HMRC's tax regulations require that pension income calculations incorporate one week at the previous year's lower rate and 51 weeks at the current year's higher rate. This adjustment accounts for the short interval between the start of the tax year and the Monday when new pension rates take effect. However, a mistake meant that some pensioners were taxed for 52 weeks at the increased rate, based on data provided by the Department for Work and Pensions (DWP).
As a result, the slightly elevated tax bill each year for over 15 years led to millions of pounds in excess tax payments, as reported by the Express. The error affected millions of state pensioners paying income tax since 2010, according to The Telegraph's investigation.
Refund eligibility and process
HMRC will not issue blanket refunds for the period from 2010 to 2020. Individuals who believe they were impacted during that timeframe must provide their own evidence for a case-by-case review. HMRC chief executive John-Paul Marks told MPs on the Treasury select committee: "If customers believe they were affected in earlier years and have the necessary evidence, they can ask HMRC to review their position. These requests will be considered on a case-by-case basis."
The sums owed back annually are relatively modest. Those receiving the full basic state pension can expect just £1.76, while those on the full new state pension are due £2.30. Additional-rate taxpayers on the new state pension could be in line for up to £8.42 for the 2023-24 tax year.
Repayment and future safeguards
Repayments will be processed through tax code adjustments, Self-Assessment credits, or cheques where required. "I am sorry that this error occurred and recognise the impact on affected customers," Mr Marks added. "We will also conclude an internal audit review, ensuring the lessons are identified and applied in future."
Affected pensioners are advised to gather any relevant evidence from the 2010-2020 period and contact HMRC to request a review of their tax position.
