The assessments – which are typically used for pensioners or employees who underpay tax due to changes in income that aren’t fully accounted for by PAYE during the year – soared to 1.32 million in 2023/24, up from 757,745 the year before.
This is the highest number on record.
Jon Greer, head of retirement policy at Quilter – the wealth manager that obtained the data – said the rise is “fiscal drag in action”, as wages and pensions rise due to inflation but tax thresholds do not.
He warned: “Millions are sleepwalking into the tax system through no fault of their own. The sharp rise in simple assessments reflects how frozen tax thresholds and higher state pensions are creating more tax liabilities for older people.
“Many of them may not even realise they owe anything until HMRC’s letter arrives.”
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An ‘easier method’
HMRC uses simple assessments as an easier-to-collect tax without requiring the taxpayer to complete a self-assessment return. Instead, HMRC issues a tax bill directly when it believes the calculation is straightforward, and usually because it believes it holds enough information about an individual’s income.
Greer said one of the reasons for the returns soaring is the number of state pensioners who also have other income in retirement that is subject to income tax collection via PAYE.
Since the state pension is paid without any tax deducted at source, those who also receive other income – such as a private pension or earnings – have their state pension taken into account via reductions to their tax code. But Greer said errors in these codes often occur.
The tax net widens
The freezing of tax thresholds, now in place until 2028, is another reason for the rise. As incomes rise with inflation, more people are pushed over the personal allowance and become liable for income tax, meaning that tax has to be taken.
The triple lock – which ensures the state pension increases each year in line with the highest out of inflation, average earnings or 2.5% – is a key driver of this, as pensioners have been pushed over the tax threshold by unusually large pension increases driven by inflation.
Greer said pensioners who receive these notices and don’t know what to do should call HMRC as soon as possible.
He said: “Unexpected tax bills can be scary, especially if you are already struggling with your finances. If you get one and don’t know what to do, the best course of action is to call HMRC to discuss your options. Do not bury your head in the sand.”
