HM Revenue and Customs (HMRC) has announced it will be refunding approximately 3.2 million state pensioners an average of £6 each after acknowledging a taxation error that led to overcharging between 2010 and 2020. The mistake involved the way taxable State Pension amounts were calculated over this period.
The issue came to light when pensioners were taxed incorrectly due to HMRC’s system using 52 weeks at the current year’s pension rate instead of the statutory method, which requires calculating entitlement as one week at the previous year’s rate plus 51 weeks at the current rate. This meant pensioners effectively paid tax on the increase equivalent to one week’s State Pension twice.
HMRC’s Chief Executive, John-Paul Marks, addressed the matter in a letter to MPs on the Treasury select committee, expressing regret over the error and its impact on customers. He stated that while HMRC will automatically refund affected pensioners for the period after 2020, individuals who believe they were overtaxed in earlier years must provide evidence to request a review on a case-by-case basis.
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This stance has drawn criticism, with tax columnist Mike Warburton calling it “disgraceful” that pensioners are expected to search through personal records for claims that HMRC should be able to resolve internally.
Antonia Stokes from the Low Incomes Tax Reform Group acknowledged the limitations HMRC faces with data availability for automated repayments beyond recent years but emphasised the importance of making the claim process as straightforward and well-publicised as possible to assist pensioners.
HMRC also confirmed that an internal audit review is underway to ensure lessons are learned and similar errors are prevented in the future.