HM Revenue & Customs (HMRC) is set to issue a record number of surprise tax bills this year, affecting more pensioners who are now caught up in the tax system. The tax authority announced that it will send out 1.4 million simple assessments for the 2024-2025 tax year, marking an increase of 80,000 from the previous year’s total of 1.32 million. This surge represents the highest number ever recorded, nearly doubling the usual annual figures over the past seven years.
Simple assessments are a method for collecting tax without requiring the taxpayer to complete a self-assessment form, typically used for pensioners or individuals who have underpaid tax. This move comes in response to the recent introduction of a new tax rule affecting thousands of Brits, leading to a significant rise in the issuance of these assessments.
The rise in simple assessments is largely attributed to the freeze on income tax thresholds, which has trapped more pensioners within the tax system. Experts warn that these unexpected tax bills can catch pensioners off guard, with many retirees now facing increased tax liabilities due to frozen thresholds until at least 2028.
While income tax thresholds have remained stagnant despite inflation, the state pension “triple lock” has boosted weekly incomes for retirees, pushing more individuals into higher tax bands. Most retirees receive income from private pensions, with tax deductions automatically taken from their payments. However, those without private pensions may receive a simple assessment tax bill.
HMRC data shows a significant uptick in taxpayers being automatically assessed for underpaid tax in recent years. In 2021-2022, amid frozen income tax thresholds, HMRC issued 675,000 simple assessments, less than half of the current numbers.
Jon Greer from Quilter noted that simple assessment letters are a result of stealth taxes, with frozen thresholds and increased state pensions creating more tax obligations for older individuals. Sir Steve Webb of LCP emphasized that the ongoing freeze on tax thresholds is dragging more pensioners into the tax net each year, with the trend expected to continue in the future.
Additionally, HMRC reports that over 500,000 claims for overpaid tax on pension withdrawals have been made since the introduction of “pension freedoms” in 2015. The pension reforms allowed savers to make ad-hoc withdrawals, leading to emergency tax rates and subsequent overpayments, resulting in significant funds being returned to retirees.
The Treasury has assured that pensioners will see an increase in their state pensions, with a commitment to supporting retirees’ financial well-being. The basic and new state pensions saw a 4.1% increase in April, with further boosts expected in the coming years, demonstrating the government’s dedication to upholding the triple lock policy and enhancing pensioner incomes.