More than a million savers and pensioners across the UK have been issued with unexpected tax demands averaging £920, according to new figures from HM Revenue and Customs (HMRC).
The Rising Tide of 'Simple Assessments'
Households are receiving what are known as 'simple assessment' letters, which require them to pay income tax that could not be collected automatically. This typically happens when an individual owes tax that cannot be deducted from their income via PAYE, owes a large sum, or needs to pay tax on their state pension. Data obtained through a Freedom of Information request reveals that for the 2023/24 tax year, the average bill levied through these notices has reached £920.
Fiscal Drag and Frozen Thresholds Bite
Financial experts point to frozen tax thresholds and rising incomes as the core driver behind this growing problem. Ian Futcher, a financial planner at Quilter, commented on the findings, stating: “The steady rise in the average underpayment highlighted by this data is a clear symptom of fiscal drag at work.”
He explained that as tax bands remain static while incomes, pensions, and investment returns gradually increase, more people are being pulled into paying tax they did not anticipate. “As tax thresholds remain frozen while incomes, pensions and investment returns creep higher, more people are finding themselves owing tax they simply did not expect to pay,” Futcher said.
Pensioners Particularly at Risk
The FOI data confirms that pensioners are among those significantly affected. While the government confirmed in the Autumn Budget that individuals whose sole income is the state pension will not pay income tax, Futcher warns this protection is limited. “Many pensioners have small additional income streams, such as private pensions, savings interest or investment income, which can quickly tip them back into the tax system,” he noted.
Looking ahead, the situation is predicted to deteriorate. With the triple lock guaranteeing state pension increases and income tax bands still frozen until at least 2028, the average amount owed is likely to climb further. This is especially true for retirees with multiple small income sources that are not taxed at source.
Futcher's advice for anyone receiving a simple assessment letter is clear: “Anyone receiving a simple assessment should not ignore it. It is important to check the figures carefully, make sure all income has been reported correctly, and understand how the tax has been calculated.” Seeking professional financial advice is often a prudent step for those confronted with an unexpected and complex tax bill.
