Article Summary
Thousands of pensioners have been issued with tax bills by HMRC due to frozen income thresholds and higher pension payments. This has resulted in a rise in the use of simple assessments, a method of tax collection used by HMRC when it believes the calculation is straightforward. This trend reflects how frozen tax thresholds and higher state pensions are creating more tax liabilities for older people.
What This Means for You
- Be aware of the possibility of receiving a simple assessment if you are a pensioner or have multiple income sources.
- Take action to understand your tax obligations and options if you receive a simple assessment.
- Stay informed about any changes to tax thresholds and how they may affect your tax liability.
- Consider seeking professional advice if you are unsure about your tax situation.
Original Post
Thousands of pensioners have been issued with bills by HMRC as frozen income thresholds and higher pension payments push them into owing tax. Rather than being expected to file tax returns, a Freedom of Information request by wealth manager Quilter has found the taxman has been increasingly issuing bills known as simple assessments to groups such as pensioners to collect owed tax.
While intended to streamline tax collection, Quilter said the growing use of simple assessments could catch people off guard and reflects in part the increasing number of pensioners being drawn into the tax system.
What is a simple assessment?
Simple assessments are used by HMRC to collect tax without requiring the taxpayer to complete a self-assessment return. Instead, HMRC issues a tax bill directly when it believes the calculation is straightforward, often where it holds enough information about an individual’s income.
Who can expect a bill?
Simple assessments are most commonly issued to three groups of people: pensioners whose total income, particularly after recent state pension increases, pushes them above the personal allowance (£12,570 for 2024/25) but who do not file tax returns, employees with multiple income sources, and taxpayers who no longer need to complete self-assessment but still have a tax liability.
How is pensioners’ income taxed?
Many state pensioners also have other income in retirement which is subject to income tax collection via PAYE. The state pension is paid without any tax deducted at source. This means those who also receive other income, such as a private pension or earnings, have their state pension taken into account via reductions to their tax code instead.
Key Terms
- Simple assessments
- Frozen income thresholds
- Tax thresholds
- Fiscal drag
- Personal allowance
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