Over a million people including savers and pensioners have been hit with surprise tax demands averaging £920, according to figures released by the taxman.
Britons are hit with simple assessments – letters requiring them to pay income tax – if they owe tax that cannot be automatically taken out of their income, owe large amounts or have to pay tax on their state pension.
The number of letters being sent out is growing every year, and new figures showing the amount being demanded on average is rising too.
As recently as 2019/20, the average underpayment was just £600, but as of 2023/24, this figure is now £920, according to data released under a Freedom of Information request.
Experts say the rise is because of frozen tax thresholds, and say the average tax demand is set to rise in future years, with thresholds now frozen until 2031.
The threshold at which people start to owe income tax has remained at £12,570 since 2022, and will remain at this level for six more years.
In this time, incomes have risen as have state pensions and so more people owe tax or bigger amounts of tax.
Although most people pay their tax straight from their salary via a system called pay as you earn (PAYE), some people, including state pensioners who owe tax on their payments, do not, and HMRC has to send them PA302, or simple assessment letters, asking for the money.
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.
Ian Futcher, 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.
“Looking ahead, this issue is unlikely to ease. With income tax bands still frozen and the state pension continuing to rise under the triple lock, the average amount owed is likely to increase further in the coming years, particularly for those with multiple small income sources that are not taxed at source.
“Anyone receiving a simple assessment should not ignore it. It is important to check the figures carefully, make sure all income has been reported correctly, and understand how the tax has been calculated.”
Recently, Chancellor Rachel Reeves clarified that when the full new state pension climbs above the £12,570 threshold, as it likely will in the next two years, those whose only income is the state pension will not pay extra tax.
But, Futcher said those with tiny additional income from private pensions will not be spared tax bills.
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He added: “At the Autumn Budget, the Government confirmed that people whose only income is the state pension will not be required to pay income tax. While this will provide reassurance to some, it is important to stress that the protection is very limited.
“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.”
HMRC said taxpayers could contact them if they had difficulty paying the tax charged in one payment.
A payment instalment arrangement may then be agreed.
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