If a similar proportion file late again this year, estimates suggest HMRC could collect £106m from automatic penalties alone, before daily fines and interest charges are added later in the year.
This figure is likely to rise in future years as more people are pulled into Self Assessment for the first time, driven by frozen tax thresholds, higher interest income and growing numbers of landlords and higher-rate pensioners.
Richard Major, Head of Private Client at accountancy and business advisory group Azets UK says: “Thanks to frozen tax thresholds and increases in state and private pensions, many pensioners are finding themselves caught in the Self-Assessment net as their total income now exceeds their tax-free personal allowance.
“HMRC has made efforts to simplify the process by creating a ‘Simple Assessment’ for most pensioners, automatically calculating tax owed using various data sources. This is (usually) automatically removed in the next tax year. But what sounds like a simple fix will likely result in confusion for many.”
There are two big issues at play, he says:
- Unable to confirm whether the calculation is correct, many will simply accept HMRC’s calculations which could put them unnecessarily out of pocket.
- Pensioners are told about their increased tax contribution via email or text but many may not know they will never be asked to pay this way. This process puts pensioners, who are already vulnerable to phone and text scams, even more at risk.
Income tax relief on registered pension schemes is up to £32 billion
HMRC released tax relief statistics this week which showed that the estimated cost of income tax relief on registered pension schemes has increased in cash terms from £25.0billion 2020 to 2021 to £32.0billion in 2024 to 2025.
HMRC said this is in part due to:
- the aggregate value of pension contributions, which tends to move in line with wider labour market income;
- the increase to the annual allowance and the abolition of the lifetime allowance likely increased contributions and decreased pension tax charges over this period, which will increase net tax relief on pensions; and
- the lowering of the additional rate threshold in 2023 to 2024 will also increase net tax relief on pensions by bringing more people into the top income tax band.
David Little, Partner in financial planning at Evelyn Partners, comments: “With the long-term freeze of tax bands and allowances, along with the dreaded £100k tax trap remaining unchanged in nearly 16 years, it’s hardly surprising that much more pension tax relief is being claimed.”
Chartered Financial Planner Tommy Hobson APFS from Path Financial adds: “Many people don’t realise they can claim additional tax relief through their self-assessment if they’re a higher, or additional-rate taxpayer. This is one of the most valuable and frequently overlooked claims.”
More than 40% increase in higher-rate income tax payers
According to the Government’s own figures, there has been a 42.6% increase in higher-rate income tax payers between 2021 and 2024 due to the freezing of tax thresholds – an estimated extra 310,000 people just in the 24/25 tax year and a whopping 6.3 million people that are now paying the higher tax rate.
Robert Cochran, Retirement Expert at Scottish Widows says: “If you think you might be in this bracket, you may need to do a self-assessment tax return by the 31st January to get the tax relief you are entitled to on your pension contributions.
“This could be worth thousands of pounds in saved tax, depending on how much you have paid into your pension, and failure to file a return or contact HMRC to advise your pension contributions means you will lose out on this money.
“The good news is you can go back and claim all your missing tax relief over the last four years.”
Why does it matter?
“A £5,000 pension contribution could mean an extra £1,000-£1,250 in tax relief back in your pocket, but only if you claim it,” says Robert.
“With millions pushed into higher tax bands for the first time, an enormous number of people are on course to overpay tax simply because they don’t know the rules.”
How to complete you self-assessment tax return
Those who haven’t started can find help and support at GOV.UK, including guidance, webinars and YouTube videos. HMRC’s online services are available around the clock. Once a return is submitted, the quickest and easiest way to pay any tax owed is via the free HMRC app, which takes less than a minute. A full list of payment options is available on GOV.UK.
Myrtle Lloyd, HMRC’s Chief Customer Officer, urges: “Don’t leave it until deadline day. Filing now will give you peace of mind that your tax return is completed and if you have tax to pay, you have a week to arrange payment.
“If you’re worried about paying your tax bill, you may be able to set up a payment plan online – search ‘difficulties paying HMRC’ on GOV.UK.”
How to get help filling in your tax return from HMRC
This year’s deadline falls on a Saturday. Customers who need to speak to an adviser can call HMRC’s phone lines, which are open Monday to Friday, 8am to 6pm. Phone lines close on Friday 30 January and reopen on Monday 2 February – after the deadline.
For full phone support, contact HMRC before Friday 30 January. On Saturday 31 January, HMRC will offer webchat support through its Online Services Helpdesk.
The penalties for late tax returns are:
- an initial £100 fixed penalty, which applies even if there is no tax to pay, or if the tax due is paid on time
- after 3 months, additional daily penalties of £10 per day, up to a maximum of £900
- after 6 months, a further penalty of 5% of the tax due or £300, whichever is greater
- after 12 months, another 5% or £300 charge, whichever is greater
There are also additional penalties for paying late. Penalties will be charged at 5% of the tax unpaid at 30 days, 6 months and 12 months. If tax remains unpaid after the deadline, interest will also be charged on the amount owed, in addition to the penalties above.
HMRC will consider customers’ reasons for missing the deadline. Those with a reasonable excuse may avoid a penalty.
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What do I need to know about Making Tax Digital (MTD) for Income Tax?
Sole traders and landlords with qualifying income of more than £50,000 will be required to use Making Tax Digital (MTD) for Income Tax from 6 April 2026 and be required to submit quarterly summaries of their income and expenses to HMRC.
“Making Tax Digital is designed to make tax simpler, but we know many sole traders feel overwhelmed by what these changes mean for them,” said Jordan Shwide, General Manager at Monzo Business.
“By launching a free, HMRC-recognised tax tool, in partnership with Sage, we’re making it easier for sole traders to send tax updates straight from their bank account, so they can feel stress-free and confident in April.”
Jennifer Staves, Deputy Director, Strategic Design: Making Tax Digital, at HMRC, adds: “Making Tax Digital for Income Tax will help people keep clearer records and get their tax right. Using software which has been recognised and approved by HMRC will make it easier for sole traders and landlords to meet the new requirements and be ready ahead of April 2026.”
Pensioners do not need to include their 2025 Winter Fuel Payment, or Pension Age Winter Heating payment in Scotland, on their tax return for the 2024 to 2025 tax year as payments received in Autumn 2025 will be recovered in the 2025 to 2026 tax return, due by 31 January 2027.
Customers should be alert to the risk of scams. HMRC will never ask for personal or financial information by text or email. Check HMRC scams advice on GOV.UK.
