More than one million Britons, many of them savers and pensioners, have received unexpected tax demands from HMRC averaging £920 each, according to data obtained under the Freedom of Information Act. The sharp rise in so-called simple assessments highlights the impact of frozen income tax thresholds, known as fiscal drag.
HMRC issues simple assessment letters to individuals who owe income tax that cannot be collected automatically through PAYE. These typically target those with state pensions, savings income, or small private pensions where tax is not deducted at source. The average underpayment has jumped from £600 in 2019/20 to £920 in 2023/24.
The personal allowance, the threshold at which income tax kicks in at 20%, has been fixed at £12,570 since 2022 and will remain so until 2031. During this period, wages, savings interest, and the state pension have all risen, pushing more people into paying tax or increasing their liabilities even without real income growth.
Ian Futcher, a financial planner at Quilter, said: “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.” He added that the issue is unlikely to ease, especially for those with multiple small income sources.
Chancellor Rachel Reeves has confirmed that when the full new state pension rises above £12,570, expected within two years, those whose only income is the state pension will not be forced to pay income tax. However, Futcher warned that this protection is narrow and will not apply to millions with even modest extra income from private pensions or savings.
HMRC has advised anyone struggling to pay a simple assessment bill in one go to contact the department, noting that payment by instalments may be agreed in some cases.
