HMRC ‘catches pensioners off guard' with record number of tax bills

Telegraph

3 days ago

HM Revenue & Customs (HMRC) is set to issue a record number of shock bills this year, as more pensioners are dragged into the tax net.
The tax office said it will issue 1.4 million simple assessments for the 2024-25 tax year, a rise of 80,000 from 1.32 million the previous year.
This marks the highest number on record and nearly double the average annual volume for the previous seven years.
A simple assessment is a way of collecting tax without requiring the taxpayer to complete a self-assessment return. It is typically used for pensioners or employees who underpay tax.
HMRC has previously said that one of the main reasons for the rising number of simple assessments was the freeze to income tax thresholds which have pulled more pensioners into the tax system.
Experts have warned that the tax demands 'catch pensioners off guard' and that retirees have become a 'casualty' of the threshold freeze, which is due to remain in place until at least 2028.
While income tax thresholds have failed to rise with inflation, the state pension 'triple lock' has pushed up retirees' weekly payments, meaning millions more have been dragged into the tax net – or higher tax brackets.
Most retirees also receive income from private pensions, meaning the tax they owe is collected automatically via their tax code. However, those without private pensions may be sent a simple assessment tax demand.
HMRC data shows a steep acceleration in the number of taxpayers being automatically assessed for underpaid tax in the four years.
In 2021-22 – the year income tax thresholds were frozen – HMRC issued 675,000 simple assessments, 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.
While intended to streamline tax collection, their growing use reflects in part the increasing number of pensioners being drawn into the tax system.
Jon Greer, of wealth management firm Quilter, said: 'Simple assessment letters are a prime example of the consequence of stealth taxes in action.
'Much of this rise is down to how frozen tax thresholds and higher state pensions are creating more tax liabilities for older people.
'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, now partner at pension consultants LCP, said: '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.
'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 show that the total number of claims for overpaid tax on pension withdrawals has now surpassed 500,000 since 'pension freedoms' rules were introduced in 2015.
The reforms allowed savers to take ad-hoc amounts from their pensions but meant they were charged an emergency rate with HMRC's systems assuming a one-off withdrawal would be repeated each month. Hundreds of thousands of retirees have overpaid tax as a result, with nearly £1.5bn reclaimed by pensioners who were overtaxed.
A Treasury spokesman said: '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 4.1pc.
'Pensioners will receive a boost of up to £470 to their income in 2025-26. Our commitment to the triple lock means millions will see their pension rise by up to £1,900 this parliament.'