TL;DR
HMRC has issued an alert about income tax errors affecting pensioners on PAYE. Here is what has gone wrong, who is affected, and how to check and correct your tax code.
#section-news | editors-picks
HM Revenue and Customs (HMRC) has identified an income tax calculation error affecting a cohort of pensioners paid through the Pay As You Earn (PAYE) system. The error relates to incorrect tax code assignments, which in some cases have resulted in pensioners paying either too much or too little income tax.
What Has Gone Wrong
Tax codes used in PAYE are calculated by HMRC based on a taxpayer's personal allowance, pension income, and any other taxable income. When multiple pension income streams are present, or when a new pension commences mid-year, the system can generate an incorrect cumulative code. The result is that PAYE deductions do not reflect the correct liability for the tax year.
HMRC uses real-time information (RTI) submitted by pension providers to reconcile accounts. Where RTI data is delayed or mismatched, errors can persist until the end of the tax year when HMRC issues a P800 tax calculation notice.
Who Is Affected
Pensioners most likely to be affected include those who receive income from more than one pension source, those who recently began drawing a pension, and those who receive both the State Pension and a private or workplace pension. The State Pension is not paid through PAYE directly but is treated as taxable income and factors into the PAYE code applied to other pension income.
How to Check Your Tax Code
Tax codes are shown on pension payslips and on HMRC correspondence. The most common code for basic-rate taxpayers is 1257L, which reflects the standard personal allowance of 12,570 pounds for the 2025 to 2026 tax year. An emergency code such as 0T or BR indicates a problem. Pensioners can check and update their tax code via the HMRC personal tax account at www.gov.uk/personal-tax-account or by calling HMRC on 0300 200 3300.
What to Do If You Have Overpaid
Where HMRC calculates that too much tax has been deducted, it issues a P800 refund notice automatically after the end of the tax year. Refunds can also be claimed in-year by contacting HMRC directly. Where underpayment has occurred, HMRC typically collects the shortfall through an adjusted tax code in the following year rather than requiring a lump sum payment immediately.
State Pension and the Personal Allowance
The full new State Pension is 11,502.40 pounds per year for 2025 to 2026. This is below the personal allowance of 12,570 pounds, meaning State Pension alone does not generate an income tax liability. However, pensioners with additional income above the personal allowance threshold will pay tax at 20 percent on the excess up to 50,270 pounds.
Frequently Asked Questions
How do I know if my pension tax code is wrong?
Check your payslip or HMRC personal tax account. A code other than 1257L may indicate an adjustment. Contact HMRC on 0300 200 3300 if you are unsure.
Will HMRC refund me automatically if I have overpaid?
Yes. HMRC issues a P800 notice after the end of the tax year if it calculates an overpayment. Refunds can also be requested in-year by contacting HMRC directly.
Does the State Pension count as taxable income?
Yes, the State Pension is taxable income, but it is paid gross. It is factored into the PAYE code applied to other pension sources, which is where errors most commonly arise.
