HMRC hits hundreds of thousands of pensioners with unexpected tax bills

Telegraph

20-05-2025

HM Revenue & Customs (HMRC) has hit hundreds of thousands of pensioners with shock tax bills.
The tax office issued 1.32m 'simple assessments' in the 2023-2024 tax year, up 74pc from 757,745 the year before, according to data revealed via a Freedom of Information (FOI) request.
This marks the highest number on record and more than double the average annual volume for the previous six years.
A simple assessment is a way of collecting tax without requiring the taxpayer to complete a self-assessment return. They are typically used for pensioners or employees who underpay tax.
In its FOI response, HMRC said one of the main reasons for the rise was frozen income tax thresholds which have pulled more pensioners into the tax system.
Experts said the tax demands 'catch people off-guard', especially pensioners who assumed their incomes fell below the £12,570 tax-free personal allowance threshold.
Income tax thresholds have been frozen since 2022 under the Tories and are due to remain so until 2028.
At the same time, 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.
The HMRC data shows a steep acceleration in the number of taxpayers being automatically assessed for underpaid tax.
HMRC 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.
'Fiscal drag in action'
Steve Webb, a former pensions minister, now partner at pension consultants LCP, said, 'hundreds of thousands' of the recipients of simple assessments were likely to be pensioners.
He added: 'Many retired people on modest incomes may have hoped that their days of having to deal with HMRC were over, but the long-term freeze in tax thresholds has changed the situation.
'Although most pensioners will still not have to file a tax return, hundreds of thousands will still get an unwelcome year-end tax demand from HMRC.
'As well as representing an unwelcome bill, pensioners with queries may find it is very hard to get through and speak to someone on the phone if they have questions about their assessment – leading to further stress and frustration.
'For the good of pensioners and the efficiency of the system as a whole, the whole system needs to be reviewed.'
Jon Greer, head of retirement policy at Quilter, said: 'This is yet another sign of fiscal drag in action. 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.
'While simple assessments are meant to simplify tax collection, they can catch people off guard, especially pensioners who don't complete a tax return and assume their income is below the tax-free threshold.
'Unexpected tax bills can be scary, especially if you are already struggling with your finances.'