HMRC has confirmed that more than 1.32 million people received underpayment notices for the 2023/24 tax year. These demands, issued under the Simple Assessment system, are becoming increasingly common and increasingly expensive.
The average underpayment is now £920, up significantly from recent years. The main driver is fiscal drag. While incomes, pensions, and interest rates have risen, tax thresholds have remained frozen. The Personal Allowance has been stuck at £12,570 since 2022 and is not due to rise until at least 2031.
Pensioners are particularly exposed. The State Pension is paid without tax deducted, and increases under the triple lock are pushing more people above the Personal Allowance. Add a small private pension or savings interest, and an unexpected tax bill becomes almost inevitable.
Many people assume that PAYE means their tax affairs are settled. That assumption is increasingly wrong. PAYE struggles where income comes from multiple sources, and HMRC is now relying on post-year-end assessments to recover tax shortfalls.
The solution is not panic, but planning. Reviewing PAYE codes, managing pension withdrawals, and forecasting savings interest can significantly reduce or eliminate underpayments. In some cases, entering Self Assessment provides greater transparency and control.
Unexpected tax bills are no longer the exception. They are becoming the norm. The earlier the planning, the better the outcome.
