In a significant move, HM Revenue and Customs (HMRC) has declared it is prepared to write off outstanding tax bills for many state pensioners who have been affected by the government's policy of frozen income tax thresholds.
The Threshold Crossroads
The core of the issue lies in the interaction between two key figures. Due to the triple lock increase, the state pension is projected to rise to £12,572 in April 2026. This will push it just above the Personal Allowance threshold, which is frozen at £12,570 until 2028. For the first time, this means a state pension alone could create a small tax liability for some retirees.
HMRC's Stance on 'Tiny Amounts'
Typically, HMRC would adjust a pensioner's tax code under the Pay As You Earn (PAYE) system to reclaim any money owed. However, the tax office has now taken a pragmatic approach. A spokesman stated that HMRC will "not pursue hundreds of thousands of pensioners for tiny amounts of tax" if the state pension exceeds the allowance.
Elaborating on this policy, the spokesman added, "We will not normally issue simple assessments for tax that would cost more to collect than is owed. That would not be a good use of public funds." This indicates a commercial decision to avoid spending taxpayer money on chasing minimal debts.
Expert Insight on HMRC's 'De Minimis' Practice
Tax specialists have shed light on how HMRC likely handles such small sums. Dominic Arnold, a wealth manager at Evelyn Partners and former HMRC employee, explained that the department has internal guidance on 'tolerances' for small underpayments or overpayments.
Arnold noted that while not officially published, these tolerances have historically been around £9.99 for overpayments and £49.99 for underpayments. He confirmed that HMRC has standing guidance for its staff to consider writing off small amounts of unpaid tax.
Sir Steve Webb, the former Liberal Democrat Pensions Minister and now a partner at LCP, welcomed the clarity but questioned the system's logic. He said, "In some cases, these demands could be for just a few pounds or even pence... It is hard to believe that collecting relatively small sums from hundreds of thousands of pensioners in this way is a sensible system."
Adding a layer of complexity, Guy Smith of Independent Tax suggested that HMRC is unlikely to publicly announce a specific 'de minimis' limit. He argued that if such a limit became known, "other taxpayers would expect the same limit to apply to them." This implies the policy for pensioners may be handled on a discreet, case-by-case basis.
