HMRC has issued more than 1 million ‘simple assessment’ letters to people who owe income tax that cannot be collected via PAYE, with the average underpayment jumping from £600 to £920 in recent years
More than one million Brits – many of them savers and pensioners – are being slapped with unexpected tax bills averaging £920, as the stealthy impact of frozen income tax thresholds takes its toll. HMRC figures reveal a sharp increase in so-called simple assessments – letters sent to people who owe income tax that can’t be automatically collected through PAYE.
These demands typically target those with state pensions, savings income or small private pensions, where tax isn’t deducted at source. The data uncovers how the average underpayment has rocketed in just a few years. In 2019/20, the typical bill was £600. By 2023/24, it had leapt to £920, according to figures obtained under the Freedom of Information Act.
Experts are sounding the alarm that the tax burden is set to intensify as tax thresholds stay frozen until 2031, dragging more people into the tax net or increasing their liabilities, even without any real uptick in living standards. The personal allowance – the threshold at which income tax kicks in at 20%—has been pegged at £12,570 since 2022 and will remain so for another six years.
During this time, wages, savings interest, and the state pension have all climbed, meaning more people now exceed the tax-free limit or face heftier bills when HMRC finally tallies up what’s due.
While most employees pay tax automatically through PAYE, state pensions are paid out without tax deducted. As a result, HMRC sends out PA302, or simple assessment, letters when it determines that tax is owed.
With fiscal drag tightening its hold, an increasing number of households are finding they owe tax they hadn’t accounted for.
Ian Futcher, financial planner at Quilter, told The i Paper: “The steady rise in the average underpayment highlighted by this data is a clear symptom of fiscal drag at work.
“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.
“Looking ahead, this issue is unlikely to ease. With income tax bands still frozen and the state pension continuing to rise under the triple lock, the average amount owed is likely to increase further in the coming years, particularly for those with multiple small income sources that are not taxed at source.
“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.”
Chancellor Rachel Reeves has recently confirmed that when the full new state pension rises above £12,570 – expected within the next two years – people whose only income is the state pension will not be forced to pay income tax. However, Mr Futcher warned that this protection is narrow and will not apply to millions with even modest extra income.
He said: “At the Autumn Budget, the Government confirmed that people whose only income is the state pension will not be required to pay income tax. While this will provide reassurance to some, it is important to stress that the protection is very 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.”
HMRC said anyone struggling to pay a simple assessment bill in one go should contact the department, adding that payment by instalments may be agreed in some cases.
