HMRC Admits 16-Year Tax Error Hitting 1.4M Pensioners on July 10

HMRC has admitted to a 16-year tax error that overtaxed 1.4 million state pensioners in the 2024-25 tax year alone. The mistake stemmed from a 2010 system change and affected basic rate taxpayers receiving the full state pension. HMRC chief executive John-Paul Marks apologized in a letter to MPs after a Telegraph Money investigation exposed the problem. Pensioners must contact HMRC directly to claim refunds, as the error falls within the tax office’s administrative tolerances.

How many pensioners were hit and for how long

The error affected 1.4 million pensioners in PAYE in 2024-25, up from 1.17 million in 2023-24 and 762,000 in 2022-23. Additionally, up to 955,000 pensioners in self assessment and 760,000 in simple assessment may have overpaid in 2024-25 because HMRC used the wrong state pension figure in its calculations. The mistake has run since 2010-11, meaning some pensioners have been overcharged for 16 years.

What each pensioner lost on average

Basic rate taxpayers receiving the full basic state pension were overcharged an average of £1.76 per year between 2021-22 and 2024-25, according to HMRC. While the individual amounts appear small, the cumulative effect across millions of pensioners means HMRC raked in more than £2 million in extra tax last year. Jon Greer of investment company Quilter said the total impact “may have unfairly topped up government coffers.”

Why refunds won’t be automatic

HMRC has not committed to repaying affected pensioners automatically because the error falls within its administrative tolerances. Pensioners who believe they overpaid must contact HMRC directly to claim a refund. While any refunds will be welcome, the story is also a useful reminder that pension rules change more often than most people realise. Mike Warburton, the Telegraph tax columnist who revealed the problem in May, said there appeared to be “a state of chaos in HMRC over this issue.”

What HMRC says it will do next

HMRC says it is working on a solution to prevent the issue from happening again. John-Paul Marks apologized specifically to pensioners affected by the error. The tax office has not yet announced a timeline for fixing the underlying system problem or for automatically identifying all affected pensioners.

Final Thoughts

Pensioners who suspect they overpaid must act themselves: HMRC will not issue automatic refunds. The error underscores how easily large-scale tax system mistakes can persist for years without detection, affecting millions quietly.

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