More than one million people across the UK, many of them pensioners and savers, have been confronted with unexpected tax bills averaging £920, as the government's tax collection agency cracks down on underpayments.
The Sharp Rise of Simple Assessments
New data obtained under the Freedom of Information Act reveals a dramatic surge in the use of HMRC's 'simple assessment' letters. These are sent to individuals who owe Income Tax that cannot be automatically collected through the PAYE system. The typical bill has skyrocketed from an average of £600 in the 2019/20 tax year to a substantial £920 in 2023/24.
These demands predominantly target those with income streams where tax is not deducted at source. This includes recipients of the state pension, people with savings interest, and individuals drawing on small private pensions. While most employees have tax seamlessly handled via PAYE, these other forms of income require HMRC to calculate and chase the tax owed separately, often resulting in the dreaded PA302 letter.
Frozen Thresholds and Fiscal Drag
Financial experts point directly to the prolonged freeze on income tax thresholds as the engine behind this growing problem. The personal allowance – the point at which you start paying 20% income tax – has been locked at £12,570 since 2022 and is set to remain there until 2028.
During this period, wages, savings rates, and the state pension (under the triple lock) have continued to rise. This phenomenon, known as fiscal drag, silently pulls more people over tax thresholds or into higher tax bands, even if their real-terms living standards haven't improved. Ian Futcher, a financial planner at Quilter, told The i Paper: “The steady rise in the average underpayment... is a clear symptom of fiscal drag at work.”
Narrow Protection and Future Warnings
Chancellor Rachel Reeves has confirmed a future safeguard: when the new full state pension exceeds the £12,570 personal allowance – expected within two years – those whose sole income is the state pension will not have to pay income tax. However, this protection is limited.
Mr Futcher warned: “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.” With thresholds frozen until 2028 and the state pension rising, the average amount owed is predicted to climb further.
HMRC has advised that anyone struggling to pay a simple assessment bill in full should contact them directly, as payment by instalments may be an option. The key advice from experts is clear: do not ignore the letter. Check the figures carefully, ensure all income is reported correctly, and understand how the tax has been calculated.
