Nearly two million pensioners could be overcharged tax due to a major HMRC error.
Nearly two million pensioners could be overcharged tax due to a major HMRC error (Image: Getty)
Pensioners are being urged by the taxman to act before submitting a self-assessment tax return after it was revealed that 1.7 million could be overcharged in tax due to a major administrative error by HMRC. Pensioners are not required to fill in such a return if their incomes come from the State Pension, workplace pension or through savings interest, because tax is automatically deducted.
However, if their income is more complex, for example, if they are self-employed or get income as a buy-to-let landlord, they will need to fill in a self-assessment. It is estimated that around 1.7 million pensioners are required to fill in the form each year. As part of the assessment, the amount of income received through the State Pension will need to be provided. According to HMRC rules, this sum should be the current year’s weekly state pension rate multiplied by 51, plus one week at the previous year’s rate.
HMRC pre-populates a figure for their state pension but has made an error by using last year’s rate (Image: Getty)
To help people fill out the document, HMRC pre-populates a figure for their State Pension. However, it has been pre-populating the figure at the current year’s state pension rate multiplied by 52. This error means pensioners risk overpaying tax.
As a result, when filling out the self-assessment form, pensioners are being urged to amend the figure. They can also request a repayment if the form has already been submitted. The deadline for submitting returns each year is January 31.
While this amount is small – around £5 – critics have said it is concerning that HMRC is getting the basics wrong. Steve Webb, partner at pension consultants LCP said: “The way the state pension is taxed is a regular source of confusion, but it is worrying that HMRC seem to have been getting it wrong themselves.
“For pensioners who have to file an annual tax return, they need to check what figure has been included for state pension.
HMRC have apologised for the calculation error (Image: Getty)
“The HMRC guidance notes alongside the tax return correctly say that you should enter one week at the previous year’s rate and 51 weeks at the new year’s rate.
“But it sounds as though HMRC has wrongly been automatically including a slightly higher figure based on 52 weeks at the new rate.
“HMRC need to fix this, and meanwhile individuals filing their tax return should make sure they have not been taxed on a figure that is slightly too high.”
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.
“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.”