Thousands of Britons face ‘quiet scandal’ as overpaid tax in millions

Individuals will never want to pay more tax than is necessary, however, new figures are showing a temporary issue in this regard. Data published this morning by HMRC has shown it has now had to pay back more than £900million in overpaid income tax.The issue arises when it comes to pension withdrawals, made possible due to the introduction of pension freedoms in 2015.Under current HMRC rules, when a person first takes a lump sum from a defined contribution pension, tax is deducted at source.However, instead of the tax being deducted at the individual’s normal income tax rate, HMRC uses an ’emergency’ tax rate.The system presumes the person is making multiple withdrawals over the year, which could collectively take them into a higher tax band.READ MORE: State pension payment date changes will take place next month Thousands of Britons face ‘quiet scandal’ as tax overpaid in millions of pounds (Image: Getty)Overpaid tax could hit Britons in the pocket hard, but they can reclaim it.To get tax back quicker, people could fill out a Government form, but overpaid tax is ultimately repaid at the end of the year.Former pensions minister Sir Steve Webb is sounding the alarm on the matter in an effort to make people aware of the implications.The HMRC figures show in the last three months, nearly 10,000 people filled in these claim forms to be refunded £33million.DON’T MISSHunt’s income threshold freeze may see average earner £2,000 poorer [INSIGHT]WASPI woman ‘only able to heat one room’ in home [ANALYSIS]Barclays issues warning as scams involving your purchases rise [UPDATE] HMRC will repay the overpaid tax to those affected (Image: Getty)’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.’An HMRC spokesperson told Express.co.uk: “Anyone who ends up paying more tax than they should due to an emergency tax code being applied will automatically be repaid at the end of the year.”Individuals have the option of claiming back any overpayment earlier if they wish. Ultimately, nobody will overpay tax as a result of taking advantage of pension flexibility.’