HMRC repaid a further £33,088,782 to people who overpaid tax when they flexibly accessed their pensions Q3 2022, meaning that HMRC has now repaid over £900m since Pension Freedoms were introduced in 2015.

The tax repayments on flexible withdrawals are necessary as HMRC applies an emergency 'month 1' tax code on the first withdrawal, which can lead to an initial over-taxation.

People reclaiming overpaid tax must fill in one of three forms, with the latest government Pension Schemes Newsletter has revealing that HMRC processed nearly 10,000 forms during the period, including 6,579 P55 forms, 2,119 P53Z forms, and 1,078 P50Z forms

Analysis from LCP has suggested that the total refunded now stands at £925m, in respect of 270,000 forms, although it warned that this is likely to be an understatement of the full scale of the problem.

In particular, LCP explained that some people who do not fill in a claim form may only get a refund when they eventually fill in a tax return possibly over a year later, stating that while no figures are available on this, the total amount of overpayment is estimated to be "well over £1bn since the system began".

LCP partner, Steve Webb, commented: “It remains a quiet scandal that tens of thousands of people every year have to fill in forms to get back tax from HMRC which they should never have had to pay in the first place.

“It may be convenient for HMRC to overtax people and then force them to fill in forms to get their money back, but it is hardly putting the customer first.

"A much simpler system would be for tax to be deducted at the basic rate with adjustments for those who may pay tax at a different rate, including through the annual tax return process. It is time for this scandal to end”.

More broadly, the newsletter also provided an update on pension scheme registration in Q3 2022, revealing that HMRC received in total 717 applications to register new pension schemes, a 9 per cent year-on-year decrease.

Of these applications, 65 per cent have been registered and HMRC has currently refused registration for about 14 per cent of applications, while no decision has yet been made on the remainder.


This article first appeared on our sister title, Pensions Age.

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