Half a million taxpayers will receive a ‘tax demand’ letter from HMRC – here’s what to do if you receive one

More than half a million taxpayers face hefty fines if they ignore a “tax demand” letter from HMRC, according to a leading tax firm.

In the coming weeks, 560,000 people will receive simple tax assessments for the 2023/24 tax year, according to HMRC’s own figures.

Simple assessment letters will be sent to those who owe income tax that cannot be automatically deducted from their own income, owe HMRC £3,000 or more, or have to pay tax on their state pension.

HMRC said: ‘We are writing to around 560,000 customers who have taxable income but are not self-assessed, or for whom we cannot automatically deduct the tax due through a PAYE tax code.

‘The letter will include a detailed calculation of any taxes owed on income they received between April 2023 and April 2024.’

An increase in interest rates means that more people with modest savings could now also be subject to taxes on their income.

It will also be the first time many pensioners will receive a tax claim, because frozen personal allowance thresholds mean their state and private pension income has pushed them over the threshold.

This means that of the half a million taxpayers expected to receive a tax demand letter, 140,000 will be pensioners.

Recent figures from the IRS have revealed that more pensioners than ever before are now paying income tax on their state pension.

The number of people over state pension age paying income tax rose from 7.85 million in 2023/24 to 8.51 million in 2024/25, an increase of 660,000.

“Unfortunately, many taxpayers tend to automatically ignore all correspondence they receive from HMRC or simply assume that ‘tax will take care of itself’ and will be collected through PAYE or some other form of withholding tax,” says Robert Salter, director at tax firm Blick Rothenberg.

‘However, these simple assessments are actually a tax requirement and will require the individuals involved to proactively make a tax payment to HMRC.

‘Otherwise, they will be subject to penalties and interest on their taxes for not settling the tax position on time.’

Taxpayers will typically have until next January to pay their bill and can pay in installments if necessary, as long as they do so before the deadline.

However, it is worth double-checking the calculations HMRC has prepared and what income is captured within the assessment.

“Experience shows that HMRC does not necessarily ‘capture’ tax deductions that may be available to a taxpayer for things like charitable contributions, pension contributions or professional subscriptions and similar costs,” says Salter.

‘If taxpayers simply pay any tax required by the simple assessment without considering whether there are tax deductions available, they will end up ‘overpaying tax’ to HMRC.

In general, this is another one of those cases where it may be wise to spend five or ten minutes evaluating the IRS’s figures.