HMRC warning as savers forced to overpay thousands in tax after system errors

Savers across the UK are said to be wrongly charged tax after HMRC incorrectly processed bank account information shared by financial institutions.

The errors have led to the tax authority demanding money on savings interest that either does not exist or is held inside tax-free ISA accounts.

In some cases, taxpayers have had their PAYE tax codes changed to recover money they allegedly owe, leaving them facing bills running into the thousands.

The problems were uncovered in an investigation by The Telegraph, which found growing concern over the accuracy of HMRC’s automated systems.

The issues stem from rules introduced in 2016 by former chancellor George Osborne, which forced banks to send annual savings interest data directly to HMRC.

That system allows HMRC to automatically adjust tax codes to recover what it believes savers owe.

However, the system has been plagued by multiple types of mistakes.

Financial advisers report seeing a “growing number of cases” involving incorrect tax codes since banks began sharing savings data.

The errors range from flawed estimates to interest figures being counted twice, and in some instances, money held in cash ISAs has been wrongly treated as taxable.

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Some individuals have even been linked to savings accounts they do not own.

Last year alone, 2.76 million people were caught in the savings tax net, with frozen allowances meaning more savers are now affected.

In one particularly stark example, HMRC estimated a worker had £3,847 in untaxed savings interest when the true amount was just £94.

This massive miscalculation led to the taxpayer overpaying £1,476 for the 2025-26 tax year, with their monthly take-home pay dropping by £200.

The error was only corrected after the case was raised with HMRC.

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Online bank Zopa, which serves 1.7 million customers, revealed that hundreds of its account holders potentially had their tax codes wrongly changed last year.

The bank said tax-free cash ISA interest had been incorrectly reported to HMRC.

Although Zopa identified the error on 7 October and sent corrected data the same day, customers continued receiving unexpected tax bills even after HMRC confirmed it had updated its records.

Richard Fuller, the shadow chief secretary to the Treasury, said: “At a time when many are struggling with Labour’s tax hikes and the cost of living, we are learning that HMRC has been taking money it shouldn’t and putting people’s finances under further strain.

“Ministers should act to bring HMRC into line and stop these unnecessary and unfair charges.”

Former Conservative leader Sir Iain Duncan Smith was equally critical, describing HMRC as “a department that has been a law unto itself for far too long”.

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He added: “Spying on people’s private lives is not what I would call doing a good job.”

Robyn Lovatt, of financial advice firm Shackleton, warned that savings interest estimates are being fed into tax codes “often without any clear breakdown of how the figures have been calculated”.

She noted the system relies on previous year’s data, leaving taxpayers “playing catchup with estimated figures that may not reflect reality”.

HMRC stated that it updates tax codes “based on the most recent data available from financial institutions”.

A spokesman said: “We don’t want anyone to overpay or underpay tax. Anyone who thinks the information we have is incorrect should let us know straight away so we can put things right.”

The authority confirmed it will verify actual savings interest figures reported by banks for 2025-26 in November this year.

From 2028, banks will be required to collect National Insurance numbers from all customers to simplify reporting, with quarterly rather than annual data submissions expected.

Mike Warburton, a tax columnist, cautioned: “Individuals have got to wake up to the fact that you cannot trust what HMRC is telling you. You have to check it.”