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Pensioners could be targeted by legal letters over savings, officials at HMRC have admitted. Due to the personal tax threshold freeze, together with frozen interest tax bands, the HMRC told a committee of MPs that it was more likely people are being targeted.

And officials told the Treasury Committee that banks are sending HMRC officials details about the savings of state pensioners – and they’re being charged tax for the first time.

Dame Harriett Baldwin mentioned a constituent’s case where a pensioner in her mid-70s: “Suddenly got a demand for a past year—something like two or three years ago—based on bank data. Are you suddenly getting a lot of cases open retrospectively because you are now receiving more information on savings interest from banks? Is that something that is happening?”

HMRC Director General for Customer Compliance Group Penny Ciniewicz said that officials are ‘Certainly using bank and savings data more than we used to.”

The increase in pensioners being targeted is because of the personal allowance being frozen – with interest rates and inflation meaning more and more people are going over the threshold. Personal Savings Allowance (PSA) lets you earn a set amount of savings interest each tax year without paying UK income tax.

The amount people get depends on their Income Tax bracket – basic-rate (20%) taxpayers can earn £1,000 of tax-free interest. Higher-rate (40%) taxpayers can earn £500 of tax-free interest.

Jonathan Athow Director General, Strategy and Policy, HM Revenue and Customs said: “For about ten years now, banks have sent us data on the interest people have received. We will put that together with other information we know. If you are a pensioner, say you have savings interest in a state pension from DWP; DWP will tell us how much pension you are getting, and we will then understand how much interest you are getting.

“If that is below the personal allowance, we do not contact somebody, but if it is above the personal allowance, we will write to them saying, ‘There is this bill that you need to pay.’”

Dame Harriett asked: “Are you suddenly doing more of that retrospectively?”

Mr Athow replied: “There are two things: the state pension has been increasing relative to the personal allowance, which we have already discussed; and two or three years ago interest rates went up, meaning more people were getting more interest. In the past couple of years, therefore, we have seen that, as we do the end-of-year reconciliation—which normally happens in the summertime following the April—it is for the year before.”

The committee was also told that the way HMRC will deal with pensioners going over the personal tax threshold of £12.570 due to the triple lock hasn’t been sorted out yet. The Government has pledged that people only receiving the new full state pension, which will go voer that poitn where people normally start paying tax, next year, will not have to pay.

Mr Athow said: ”The Chancellor has indicated that the arrangements for that will be set out in the Budget.” Dame Harriet replied: “So you have worked it out, but it will not be announced until the Budget?”

Mr Athow said: “The Chancellor has said that the Budget is when that will be set out, and that is what we are expecting.”

The issue of people being contacted with legal letters over paying tax for the first time was raised. Dame Harriett said a pensioner got a demand from a law firm. She asked: “I just wondered, Ms Ciniewicz, if you are using law firms more and how often you reconcile that data. Is that something that you are using more, particularly with regard to pensioners?”

Dame Meg Hillier, the committee chair, asked: “As a general rule, do you outsource chasing a debt to law firms, or is it something that could be a scam? Do you have any message for taxpayers if that were to happen?”

John-Paul Marks, First Permanent Secretary and Chief Executive of HM Revenue and Customs, said: “On debt, it is the case that the Government have funded additional capacity in debt-collection agencies to support our debt operation. Debt will only be passed to a third party after a whole bunch of checks and safeguards have gone through, so it is possible that in that situation, the customer resolved the debt with us, but that had not yet been reconciled.”

Dame Harriett added: “Am I right to be worried that more and more pensioners across Great Britain and Northern Ireland are going to be getting letters from debt collection agencies and suddenly interacting with a tax system that they have previously not had to worry about?”

Mr Athow said: “There are going to be more interactions with pensioners, and more people will be brought in. As I said, there are particular challenges. If they have a private pension, we would collect the tax through that, but no PAYE is worked on the state pension, so that means we have to ask people for the money. There is going to be more of that, but we can also write to you about how the customer journey works.

We do use debt collection agencies, but that is only a last resort—the idea is not to hand people straight over. We can explain the process and hopefully give you reassurance on how that will work. We write to more pensioners to say that, because of their pension and interest, there is tax to be charged.”