HMRC and New Simple Assessment Letters for Income Tax

We have all heard of Self Assessment for Income Tax with HMRC.  Many of us complete self assessment returns each year due to having non-PAYE income.  Remember, if you are an employee or on a regular pension income, tax is deducted at source via Pay As You Earn (PAYE).  If you have other sources of income such as:

• Income from savings interest in excess of the tax-free Savings Allowance.
• Dividend income from shares and share based investments.
• Insurance bond withdrawals in excess of the 5% pa rule that create a chargeable event for tax.
• Income from both UK and overseas investments, property and other sources.
• ‘Second jobs’ or ‘sideline’ businesses that generate income.

If you have any of the above additional sources of income or if you are a Higher Rate Taxpayer or Additional Rate Taxpayer, you will usually also have to complete a self assessment income tax return.

New Simple Assessment Tax Returns

We have shot this video because this week we received our first HMRC Simple Assessment tax return/tax due notice.  From June 2025, HMRC has started to issue Simple Assessment letters outlining the amount of tax owed on income received between April 2024 and April 2025.  Why is this?

The Personal Allowance of £12,570 has been frozen since April 2021 and is due to continue to be frozen on April 2028 with rumours that the Chancellor, Rachel Reeves may extend this freeze until 2030.  This means we are all paying more income tax as incomes rise in addition to more people have to start paying income taxes as their state and private pension incomes increase.

The Problem is the State Pension.

With the triple lock, State Pensions have increased dramatically over the last few years due to high inflation and then higher wage growth.

New State Pension:

• State pensions are ‘taxable income’ but they are paid gross, without income tax deduction as the State pension is currently below the personal tax allowance, with any taxes due being collected from other sources of income or pension, if you have any.
• The new State Pension started in 2016, and a full new state pension is currently £11,973 pa for 2025/26.
• The personal allowance is only £12,570, so if state pensions increase in 2026/27 by more than 4%, all full, new State Pensions will be over the personal tax allowance meaning income tax is due but has not been collected.  Certainly, by 2027/28 we expect the state pension to have exceeded the personal tax allowance meaning many pensioners will face tax bills.

Old Basic State Pension and Additional State Pensions:

• For those that retired before April 2016, you will receive the old-style Basic State Pension but also an Additional State Pension built up from national insurance contributions to the State Earnings Related Pension Scheme (SERPS) and the subsequent State Second Pension (S2P).  Think as a 2^nd tier state pension on top of the old-style basic state pension.
• Many old-style Basic State Pensions and Additional State Pensions, when combined, already exceed the personal tax allowance meaning tax is due but has not been collected.

Simple Assessment Letters

• HMRC now has an automated process to calculate your gross income less tax already paid to establish whether there is additional tax due that cannot be collected via PAYE.
• If you owe more than £3,000 or if  you should be paying taxes on state pensions (remember these are paid gross with no income tax deduction), you will receive a Simple Assessment letter and be asked to pay any income taxes due.

Late Payment Charges

Do not ignore Simple Assessment letters.  If you are late settling any taxes due, you will be fined:

• 5% penalty of tax due after 30 days of late/no payment.
• Additional 5% penalty of tax due after 6 months of late/no payment.
• Another, additional 5% penalty of tax due after 12 months of late/no payment.

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