HMRC set to issue record number of tax bills - see who will be affected

HM Revenue & Customs (HMRC) is poised to send out a record number of unexpected bills this year, as increasing numbers of pensioners find themselves caught in the tax system.

The tax authority revealed it will dispatch 1.4 million simple assessments for the 2024-2025 tax year, representing an increase of 80,000 from the previous year's 1.32 million. This result is the highest figure ever recorded and nearly twice the typical annual total over the past seven years.

A simple assessment will serve as the method for collecting tax, without demanding the taxpayer fill out a self-assessment form - which is commonly employed for pensioners or workers who have underpaid tax. This follows news of 'thousands of Brits to get shock letter from HMRC after drastic new tax rule comes into force'.

HMRC has previously stated that a primary driver behind the growing number of simple assessments was the freezing of income tax thresholds, which has ensnared more pensioners within the tax framework.

Specialists have cautioned that these tax bills "catch pensioners off guard" and that retirees have fallen victim to the threshold freeze, which is scheduled to continue until at least 2028.

Whilst income tax thresholds have remained static despite inflation, the state pension "triple lock" has boosted retirees' weekly income, resulting in millions more being pulled into the tax system – or elevated tax bands. The majority of retirees also draw income from private pensions, meaning their owed tax is deducted automatically through their tax code. Nevertheless, those lacking private pensions may receive a simple assessment tax bill.

HMRC data reveals a sharp increase in the number of taxpayers being automatically assessed for underpaid tax over the past four years. In 2021-2022, the year when income tax thresholds were frozen, HMRC issued 675,000 simple assessments, which is less than half the current figure.

The tax office issues a simple assessment when it believes the calculation is straightforward, often where it holds enough information about a taxpayer's income. And whilst these assessments are intended to streamline tax collection, their growing use partly reflects the increasing number of pensioners being drawn into the tax system.

Jon Greer, from wealth management firm Quilter, commented: "Simple assessment letters are a prime example of the consequence of stealth taxes in action". He added that "much of this rise is down to how frozen tax thresholds and higher state pensions are creating more tax liabilities for older people". Greer stated that "a lot of these people will not even be aware that they may owe some sort of tax on their income and can catch many off guard".

Sir Steve Webb, a former pensions minister and now Partner at pension consultants LCP, claimed: "These figures highlight another casualty of the long-term freeze of personal tax thresholds. With every passing year, more and more pensioners on modest incomes are being dragged into the income tax net".

He shared that, "with thresholds being frozen for years to come, more retired people will have to deal with this process in future".

Separate figures released by HMRC reveal that the total number of claims for overpaid tax on pension withdrawals has now exceeded 500,000 since "pension freedoms" rules were brought in during 2015.

The shake-up, which permittedsaversto withdraw ad-hoc sums from their pensions, resulted in them being hit with an emergency rate, with HMRC's systems presuming a one-off withdrawal would be replicated monthly. This saw hundreds of thousands of pensioners overpaying as a consequence, with nearly £1.5 billion clawed back by retirees who were overtaxed.

A Treasury spokesman promised: "We are committed to help our pensioners live their lives with dignity and respect, which is why in April the basic and new state pension increased by 4.1 pc". They also claimed that "pensioners will receive a boost of up to £470 to their income in 2025-26" - their "commitment to the triple lock mean[ing] millions will see their pension rise by up to £1,900 this parliament".

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