Millions of pensioners could be owed money after HMRC tax error

Millions of pensioners could be owed money after HMRC admitted it has been charging some retirees too much tax.

The error may have affected up to 8.7 million people, many of whom won't have realised they were paying more than they should.

HMRC says the average overpayment is around £5, but it has yet to contact everyone affected or explain exactly how refunds will be made.

For pensioners already trying to make their income stretch further, it's the latest blow at a time when many are facing rising household bills and increasing living costs.

And while £5 might not sound like a huge amount, the bigger concern is that people have been paying too much tax without knowing it.

If you're retired and you’re watching every penny, here's what you need to know.

What has HMRC got wrong?

The issue relates to the way HMRC calculates tax for some people receiving the state pension.

Each year, the state pension increases under the triple lock. This means it rises by whichever is highest out of inflation, average earnings growth or 2.5%.

However, HMRC has admitted it used incorrect figures when calculating some taxpayers' liabilities. As a result, millions of pensioners may have paid slightly more tax than they actually owed.

The problem is believed to have affected pensioners who complete self-assessment tax returns, as well as some people who receive the state pension while still working and paying tax through PAYE.

HMRC says it has known about the issue for several months and is working to correct it.

Why does this matter?

For some retirees, an extra £5 in tax will go unnoticed.

But many pensioners are living on modest incomes and carefully budgeting each month to cover essentials such as food, energy and housing costs.

Some may be just above the threshold for pension credit, meaning they miss out on valuable financial support despite still struggling to make ends meet.

For households in that position, every pound matters. More importantly, people expect to pay the correct amount of tax - no more and no less.

The concern is not just the amount involved. It's that millions of people may have been overcharged without being told.

Could you be affected?

HMRC is still working out exactly how many people have been impacted.

The issue is believed to affect some pensioners who pay tax through self-assessment as well as those whose tax is collected through the PAYE system.

If you receive the state pension and pay income tax, it's worth keeping an eye out for updates from HMRC over the coming months.

You may also want to check your tax code and review any recent tax calculations if you think something doesn't look right.

Will you get a refund?

At the moment, HMRC has apologised for the error and says it expects to provide an update later this summer.

But it has not yet confirmed whether everyone affected will receive an automatic refund.

That means some pensioners may need to contact HMRC themselves if they believe they've been overcharged.

If you're concerned, it's worth keeping any tax paperwork, notices and calculations in case you need them later.

Make sure you're claiming everything you're entitled to

This latest tax error is also a reminder that many pensioners could be missing out on financial help elsewhere.

Pension credit remains one of the most underclaimed benefits in the UK, despite opening the door to extra support with housing costs, council tax, heating bills and more.

Many retirees assume they won't qualify because they own their home or have some savings. Others think their income is too high.

But eligibility isn't always straightforward, and even a small amount of pension credit can unlock access to other forms of support.

If you're worried about your finances, it's worth checking whether you're receiving everything you're entitled to. You can use our free online benefit checker to find out.