HMRC has admitted a significant error in the calculation of tax on state pensions, potentially affecting nearly 1.7 million claimants. The admission came after tax expert Mike Warburton, a columnist for The Telegraph, highlighted the issue.
How the Error Was Discovered
Mike Warburton explained that a retiree approached him questioning whether HMRC was correctly calculating tax on his state pension. The pensioner noted that HMRC's guidelines for completing self-assessment tax returns did not align with the statutory position.
The core issue is that the state pension is not taxed based on when payments are received but rather on the entitlement as it accrues over the tax year. According to Department for Work and Pensions (DWP) guidance, pensioners should "Add up the amount you were entitled to receive from April 6 2025 to April 5 2026 and put the total in box eight."
The guidance further states: "For tax purposes, the correct amount is always the figure of weekly entitlement, not the number of payments you received, so this will be the first week at the old weekly pension rate, plus 51 weeks at the new weekly pension rate."
Pre-Populated Returns Incorrect
Upon checking his own online self-assessment, Warburton found that the state pension box had been pre-populated at 52 times the main rate for 2025-26, rather than the correct calculation. After being alerted, HMRC confirmed that all pensioners' self-assessments had been pre-populated on this erroneous basis.
Warburton stated: "If the guidance is correct in law, as the department confirms, it is an admission that HMRC has pre-populated around 1.7 million self-assessment returns for pensioners at higher amounts than the law requires."
HMRC's Response
An HMRC spokesperson said: "We apologise to those affected by this calculation error, although the impact is small with the difference in tax owed being around £5 in most cases."
The department added: "Anyone who believes the amount of state pension shown on their tax return is incorrect can amend the figure before submitting their return, and anyone who believes they have overpaid tax can request a repayment."
