The number of UK households receiving an unexpected end-of-year tax bill from HM Revenue & Customs has nearly doubled in just two years, new figures reveal.
Data obtained through a Freedom of Information request shows that more than 1.3 million people were sent a 'simple assessment' tax demand in the 2023/24 financial year. This marks a dramatic surge from the figures recorded two years prior.
Who is Receiving These Tax Demands?
The FOI request was made by former pensions minister Sir Steve Webb, now a partner at consultancy LCP. He warns that the main driver behind the increase is the ongoing freeze on income tax thresholds.
Simple assessment letters are automatically generated and sent out when HMRC calculates that an individual owes tax that cannot be collected automatically through the Pay As You Earn (PAYE) system. This typically affects those who:
- Owe HMRC £3,000 or more.
- Have untaxed income from sources like savings interest or dividends.
- Earn money from a second job or side hustle not processed through PAYE.
Sir Steve highlighted that a significant portion of those affected are likely to be pensioners, especially those whose state pension has now crossed the frozen personal allowance threshold due to annual increases.
The Impact of Frozen Tax Thresholds
The income tax personal allowance has been frozen at £12,570 since April 2021 and is set to remain at this level until at least the start of the 2031/32 tax year. As wages and pensions increase with inflation, more people are being pulled into paying tax or into higher tax brackets—a phenomenon known as 'fiscal drag'.
The FOI data breakdown shows the varying scale of these surprise bills. While a quarter of the demands were for sums under £100, nearly another quarter were for over £1,000 in unpaid tax.
"For many people, having to deal with the tax office is a hassle they can do without," said Sir Steve. "But the continued freezing of the income tax personal allowance means that the numbers getting unwelcome end-of-year tax demands have soared."
What to Do If You Receive a Bill
If you receive a simple assessment letter from HMRC, you have options. Payment can be made in full or in instalments before the deadline. Methods include using the HMRC app, paying online via GOV.UK, by bank transfer, or by cheque.
It is crucial to check the details carefully. If you believe an error has been made, you must contact HMRC within 60 days to query the assessment.
Most employees and pensioners will be on tax code 1257L, which reflects the £12,570 personal allowance. You can find your tax code on your latest payslip or P45 form.
Sir Steve concluded with a call for broader reform: "Although the Government has indicated it may address this issue for a subset of pensioners from 2027, a much wider-ranging solution is needed."
