Why HMRC Will Manually Review 107000 Tax Calculations After Technical Errors

HMRC is manually reviewing 107,000 tax calculations from the 2025-26 tax year after a long-running computer error meant some taxpayers may not have received the most beneficial ordering of their allowances and reliefs.

The fault, involving beneficial ordering, was first identified in 2021 and remains unresolved as of September 2026.

Key takeaways:

• HMRC is manually checking 107,000 tax calculations from the 2025-26 tax year, representing around 0.24% of the total PAYE population.
• The issue relates to the way HMRC’s P800 system applies the beneficial ordering rules under section 25(2) of the Income Tax Act 2007.
• HMRC expects the number of calculations requiring a manual check to fall to around 20,000, with changes to the tax rules from April 2027 expected to reduce the number further.

Why HMRC is Checking 107,000 Tax Records for Errors

HMRC has begun manually reviewing 107,000 tax calculations from the 2025-26 tax year after admitting that a long-standing computer fault can miscalculate some taxpayers’ allowances.

The review covers PAYE records where scans identified a mismatch in how personal allowances were divided across employment, savings, or dividend income.

This figure represents around 0.24% of the total PAYE population, according to HMRC. The tax authority has not finished checking every case, so it cannot yet confirm how many calculations will need correcting before revised figures are issued to taxpayers.

Are You Affected by the HMRC Tax Code Error?

You are more likely to be one of the 107,000 if your income comes from more than one source in the same tax year. HMRC’s scans flag cases where allowances may not have been applied in the most advantageous way. 

Four situations may make it more likely that your tax calculation falls within the group HMRC is reviewing:

1. You have both employment or pension income and savings interest above your Personal Savings Allowance.
2. You receive dividend income alongside a salary or pension.
3. You have property, savings or dividend income alongside employment or pension income.
4. Your income sources changed significantly between the 2024-25 and 2025-26 tax years.

If your income comes from a single PAYE source and you do not have other relevant income, the beneficial-ordering issue is less likely to affect your calculation.

The P800 System Flaw: What Exactly is Beneficial Ordering?

The root cause lies in how HMRC’s P800 system calculates tax owed for taxpayers who are not completing a full Self Assessment return. A P800 is produced through HMRC’s PAYE end-of-year reconciliation process, and the current issue concerns how that process applies beneficial ordering.

Under the beneficial ordering rules in section 25(2) of the Income Tax Act 2007, allowances and reliefs are deducted in the way that produces the greatest reduction in the taxpayer’s overall Income Tax liability.

The issue was first documented in detail by AccountingWEB, where tax specialist Tim Good identified the discrepancy in 2021. HMRC acknowledged the fault at the time but has not corrected the underlying PAYE system since.

This is not HMRC’s only allowance miscalculation. In a separate, older case, HMRC admitted overtaxing millions of state pensioners since 2010 after state pension income was miscalculated against personal tax codes. The two problems are technically unrelated, but both stem from allowances being split across income types incorrectly.

How to Check If Your Own Tax Calculation Is Correct

You can check your own calculation without waiting for HMRC’s review to reach you. Use these four steps to check whether your allowances were applied correctly:

1. Gather your total income for the 2025-26 tax year, split by source: employment or pension, savings interest, dividends, and any property income.
2. Work out which allowances apply to each income type, including your Personal Savings Allowance and the £500 dividend allowance.
3. Recalculate your tax bill by considering where your Personal Allowance produces the greatest reduction in your overall Income Tax liability.
4. Compare this figure against the calculation HMRC issued, and query any difference in writing rather than assuming HMRC’s version is correct.

If you’ve separately received HMRC savings account tax letters about interest reported by your bank, cross-check the figures on that letter against your tax calculation. A mismatch there can point to the same underlying allocation problem.

How to Check Your Tax Calculation Before HMRC Reviews It

If your tax affairs are straightforward, the issue may be less likely to affect your calculation. Keeping clear records can nevertheless make it easier to check your tax position.

Sarah Coles, head of personal finance at AJ Bell, has said the correct allowance order depends on how a taxpayer’s income is split and which tax rates apply to it. Stefanie Tremain of accountancy firm Blick Rothenberg has noted that even modest sums matter to the person receiving them.

• Keep a simple record of every income source you receive within a tax year, updated as new income starts or stops.
• Keep accurate records of savings interest and dividend income and make sure HMRC has the information it needs to calculate your tax correctly.
• Query any tax code change immediately rather than assuming it reflects a manual review outcome.
• If your income mix is complex, consider whether you need to file a Self Assessment tax return and keep clear records of your different income sources.

The Low Incomes Tax Reform Group has advised that anyone who disagrees with part of an HMRC calculation should contact HMRC to request a review rather than accept the figure automatically.

Will You Actually Get a Tax Refund? Myths vs. Reality

Several misconceptions have spread since HMRC’s review became public. Here are the key points to know before deciding whether to act.

Understanding what the review does and does not mean can help you decide whether you need to act.

What to Do Next If HMRC Contacts You

If HMRC contacts you with a revised calculation, read the figures carefully before assuming they’re final. Compare the corrected version against your own records for employment, savings, and dividend income before accepting it.

Anyone who receives a corrected tax calculation from HMRC following the 2025-26 beneficial ordering review can check the figure and contact HMRC if they believe it is incorrect.

HMRC has confirmed that customers can check their PAYE calculations at the end of the tax year and contact HMRC directly if they believe the tax position shown is incorrect.

Contacting HMRC directly through the HMRC Self Assessment contact number gives you a quicker way to raise a specific query than waiting for the wider manual review to reach your file.

The HMRC helpline can also confirm whether your record forms part of the 107,000 currently under review. Keep a note of the date and any reference number given during the call in case you need to follow up.

Verify any figure you remain unsure about directly with GOV.UK rather than relying on the letter alone, especially if your income spans more than one category.

Conclusion

HMRC’s manual review of 107,000 tax calculations stems from a five-year-old flaw in how personal allowances are split across savings, dividend, and employment income.

Taxpayers with mixed income sources should check their own figures rather than assume HMRC’s calculation is automatically correct. HMRC’s tax calculation review means closer scrutiny of savings and dividend allocation for UK taxpayers with multiple income sources in 2025-26.

FAQs

Why is HMRC manually reviewing 107,000 tax calculations?

HMRC is manually reviewing 107,000 tax calculations from the 2025-26 tax year because a long-running computer error can misapply personal allowances across different income types. The fault was first identified in 2021 and has not yet been permanently fixed.

Does this error affect self-employed taxpayers?

No, the error primarily affects employees and pensioners assessed through PAYE, not people who file Self Assessment returns. Self Assessment already applies beneficial ordering correctly, so the P800 flaw doesn’t apply to those calculations.

Will I get a refund automatically if I’m affected?

Not necessarily. HMRC has said not every flagged case will need correcting, and only cases within the 107,000 reviewed batch are checked automatically. Anyone outside that batch who suspects an error should contact HMRC directly.

Does this affect state pensioners specifically?

Not directly, this particular review concerns PAYE income allowances, not the state pension calculation itself. State pensioners have separately been affected by the HMRC state pension tool error, a distinct issue involving how pension income was calculated against tax codes.

How long will HMRC’s review take to complete?

HMRC has not given a fixed completion date and says the number of cases needing manual checks should fall to around 20,000 for 2026-27. Taxpayers who want to check their position sooner can review their own calculation and query it with HMRC directly.