HMRC Tax Error Overcharges Up to 3.1 Million UK Pensioners

HMRC has acknowledged a long‑standing miscalculation in State Pension tax that has led to over‑payments for up to an estimated 3.1 million pensioners in the 2024‑25 tax year. The error stems from a 2010 change to PAYE systems that applied the new pension rate to every week of the year, rather than only the 51 weeks after the annual uprating. Overpayments average £1.76 for basic‑rate taxpayers and £2.30 for the full new State Pension, with higher‑rate payers impacted about twice as much. HMRC says many small discrepancies fall within administrative tolerances and a correction will be applied by summer 2026, allowing amended Self‑Assessment returns for 2025‑26.

Separate HMRC projections show the number of high‑rate (45%) taxpayers in the UK is set to exceed 1.3 million by 2026‑27, more than double the 2021 level, while additional‑rate taxpayers will reach 1.3 million as well. The surge is driven by frozen tax thresholds that pull earnings into higher brackets – a phenomenon known as fiscal drag – despite real wages not keeping pace with inflation. Overall, HMRC estimates 40.8 million people will be liable for tax in 2026‑27, up from 36.7 million in 2023‑24.