Introduction
HMRC expects to issue approximately 1.8 million simple assessment letters for the 2025/26 tax year… a staggering increase from the 675,000 letters sent just five years ago.
The expansion is a direct consequence of frozen tax thresholds dragging millions of people into the tax net, often for relatively small sums.
What is Simple Assessment?
Simple assessment is HMRC’s alternative to self assessment for taxpayers whose income tax cannot be collected through PAYE but whose affairs are straightforward enough not to warrant a full tax return. Common triggers include:
- State pension recipients: The state pension is paid gross, without tax deducted at source.
- Bank and building society interest: Interest that exceeds the personal savings allowance.
- Untaxed investment income: Dividends above the dividend allowance.
Instead of filing a return, the taxpayer receives a letter (form PA302) from HMRC setting out a calculation of tax due based on information HMRC holds from third parties. The tax must be paid by 31 January following the end of the tax year — for 2025/26, that’s 31 January 2027.
The Numbers Tell a Story
The growth in simple assessment volumes is dramatic:
- 2017/18: 486,000 letters
- 2019/20: 594,000 letters
- 2021/22: 675,000 letters
- 2023/24: 1,321,000 letters
- 2025/26: 1,800,000 letters (estimated)
The primary driver is fiscal drag. The personal allowance has been frozen at £12,570 since April 2021 and, under current government plans, will remain frozen until at least April 2031.
Meanwhile, the new state pension has continued to increase with the triple lock.
From April 2027, the new state pension is expected to exceed the personal allowance for the first time, meaning pensioners with no other income will become liable to income tax purely on their state pension.
The Pensioner Problem
HMRC began issuing simple assessment letters to pensioners from 12 August 2026. For many, this will come as an unwelcome surprise.
Pensioners who have never had to engage with the tax system, because their income was always below the threshold, may suddenly receive a demand for tax on relatively modest sums.
The political sensitivity of this issue has not escaped the government. At the Autumn Budget 2025, Chancellor Rachel Reeves stated that the government would ensure “that people only in receipt of the basic or new State Pension do not have to pay small amounts of tax through Simple Assessment from April 2027.”
Quite how this will be achieved remains unclear. Options might include:
- A specific exemption for pensioners with only state pension income.
- A one-off increase in the personal allowance for pensioners.
- A de minimis threshold below which simple assessments will not be issued.
Until the mechanism is confirmed, advisers should prepare pensioner clients for the possibility of receiving simple assessment letters.
Bank Interest – The October Wave
Simple assessment letters relating to bank and building society interest (BBSI) will be issued between October and December 2026. This second tranche reflects the timing of BBSI data being provided to HMRC by financial institutions.
With interest rates having risen significantly since 2022, many savers are exceeding their personal savings allowance (£1,000 for basic rate taxpayers, £500 for higher rate taxpayers, nil for additional rate taxpayers) for the first time in years. A taxpayer with, say, £30,000 in savings accounts earning 5% gross will receive £1,500 in interest – £500 of which is taxable at 20% if they’re a basic rate taxpayer.
These amounts may seem modest, but across millions of taxpayers, they represent significant revenue for HMRC — and significant administrative burden for both HMRC and the taxpayers involved.
Action Points
For taxpayers receiving simple assessment letters:
- Check the figures: Simple assessments are based on information HMRC holds from third parties. Errors can occur, particularly where figures have been estimated based on historic data.
- Check the right year: It is possible to receive more than one simple assessment letter for the same tax year if HMRC’s information is updated. The most recent letter supersedes earlier ones.
- Query if appropriate: If you believe you should be within self assessment (for example, because you have other sources of income requiring a return), contact HMRC to request withdrawal of the simple assessment.
- Pay on time: The deadline is 31 January 2027 for 2025/26 liabilities. Interest and penalties apply to late payment.
- Time to pay: If you cannot pay the full amount by the due date, consider contacting HMRC to agree a time to pay arrangement before the deadline.
The Bigger Picture
The explosion in simple assessment volumes is symptomatic of a tax system under strain. The freezing of thresholds was politically convenient, it raises revenue without the government having to announce a tax rate increase, but it has consequences. Millions of people who previously had no need to engage with HMRC are being dragged into the system for the first time.
For HMRC, administering 1.8 million simple assessments (let alone the millions of self assessment returns) places enormous pressure on already stretched resources.
The irony is that much of the tax collected through simple assessment relates to relatively small sums… the administrative cost per pound collected must be significant.
For taxpayers, particularly pensioners on modest fixed incomes, the arrival of an unexpected tax demand can be genuinely distressing. Financial literacy around the tax system is not universal, and many recipients will be unsure how to respond.
As the personal allowance continues to erode in real terms, expect simple assessment volumes to climb further. The 1.8 million figure for 2025/26 may prove to be just the beginning.