HMRC to review more than100,000 tax bills after technical error: have you been overcharged?

More than 100,000 taxpayers are having their tax calculations from the 2025-26 tax year reviewed due to a flaw in HMRC’s system. 

The tax office will manually review 107,000 of its own calculations following a longstanding software problem in its IT infrastructure that sometimes incorrectly allocates savings and income allowances. This misallocation means some taxpayers may have paid more tax than they needed to. 

Here, Which? explains how the flaw could miscalculate your bill, who is affected and what is being done to fix the issue.

Why are people paying too much tax? 

The problem stems from a technical issue in how HMRC calculates tax bills for individuals who don't file a self-assessment tax return. 

At the end of each tax year, HMRC uses data from employers and pension providers to check if you have paid the correct amount of tax through the Pay As You Earn (PAYE) system. 

If there's a discrepancy, it will issue a tax calculation letter known as a P800. This process is similar to HMRC's 'simple assessment' and tells you whether you are owed a tax refund or need to pay more tax. 

When calculating P800 bills, HMRC must apply a tax rule known as 'beneficial ordering'. This rule means that your personal allowances and tax reliefs must be allocated across your income streams in whichever order produces the lowest possible overall tax bill.

Your tax-free allowances typically include:

• Personal allowance The amount you can earn before paying any income tax (currently £12,570) 
• Personal savings allowance Up to £1,000 of savings interest tax-free (for basic rate taxpayers) or £500 (for higher-rate taxpayers)
• Trading allowance Up to £1,000 of tax-free income for side hustles or casual work 
• Marriage allowance A partial allowance transfer available to eligible couples
• Dividend allowance Up to £500 of income from company shares (dividends) tax-free

However, HMRC's IT system misallocates which income type uses up your tax-free allowances first, which fails to give the maximum tax savings required by this rule and results in taxpayers being overcharged.

• Find out more: income tax calculator.

Who has been affected?

Because the error happens during HMRC's annual tax check, it mostly affects people with multiple income streams alongside their PAYE salary. This can include pensions, savings interest and dividends.

If your only source of income is a single PAYE job and you have no savings interest or dividends, the beneficial ordering issue is highly unlikely to affect your calculation.

Specifically, you're most likely to be affected if your savings earn interest above the savings allowance, you receive dividend income or property income alongside your regular PAYE salary, or your income sources fluctuated or changed significantly between the 2024-25 and 2025-26 tax years. 

Because your tax code is based on previous years, a sudden pay rise or a spike in savings interest can push you into a new tax band, which could cause HMRC's system to misallocate your tax-free allowances.

According to HMRC data, 107,000 individuals are having their tax calculations reviewed for the 2025-26 tax year. This is around 0.24% of the total PAYE population. However, in previous years, the figure for cases being checked sat far below 100,000. 

It also noted that not all of those flagged will have paid the wrong amount of tax. The tax office says the average discrepancy was less than £80 for the 2024-25 tax year, although it can be higher, depending on your individual tax bands and the complexity of your income.

• Find out more: tax reliefs and how to reduce your tax bill.

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What is being done about it?

HMRC first acknowledged this issue back in 2021. But instead of a direct IT repair, the government has introduced new legislation through the Finance Act 2026 to amend the beneficial ordering rules as it changes the tax rates for property, savings and dividend income

Tax experts warn that these upcoming changes don't actually make the calculations any simpler for the average taxpayer. 

Coming into effect on 6 April 2027, the new rules will change how your tax-free allowances are applied:

• Your personal allowances and tax reliefs will automatically be deducted from your 'standard' income first (such as a salary from a job, or pension income – anything that isn't from property, savings, or dividends). 
• If you have allowances left over after covering your standard income, the remaining balance will then be deducted from your property, savings or dividend income. This remaining portion must be applied in whichever way is most beneficial (saves the most money) for you as the taxpayer. 
• Once all your allowances and reliefs are completely used up, any leftover taxable income is allocated to the standard tax bands in order: basic rate, then higher rate, then additional rate. 

HMRC says the new approach will see the number of affected cases drop significantly to around 20,000 from next year, or around 0.05% of the PAYE population in April 2027. The tax office says this is because the changes will remove several scenarios that currently impact the calculation. 

HMRC said: 'We take extensive action to identify the minority of customers who may be affected and update their tax calculations as needed to ensure they pay the right tax. The number of calculations requiring a manual check is expected to fall to around 20,000 next year.'

• Find out more: how to fill in a self-assessment tax return.

What should you do if your tax calculations were wrong?

The most common mistake people make is assuming a tax bill from HMRC is automatically correct. Always check before paying, as the tax office can get it wrong. 

To check how much tax you owe, it helps to understand how beneficial ordering works with your specific income streams and the tax reliefs you're entitled to. 

If you receive a P800 letter, you should carefully check the numbers HMRC has used. For example, did it list the correct salary, include jobs you no longer have and accurately record your savings interest? You should also check whether it has relied on estimated figures.

You can use free online calculator tools, log into your personal tax account on gov.uk, or use the HMRC app to review your figures and gather evidence such as your P60 or P45. 

If you suspect your allowances have been allocated in the wrong order, you should contact HMRC directly to challenge the calculation and request a 'manual review'. 

If you have overpaid, you can then request a refund. You can submit this claim online, and HMRC usually refunds it directly into your bank account within five working days. However, there is a strict four-year time limit from the end of the tax year to claim this money back.

• Find out more: how to calculate your tax bill.