HMRC is facing a growing demand as more people are forced to pay tax.

The UK tax authority warned it would face additional costs in this year due to 1.2mn people being added to the tax net as a result of higher income and savings rates.

Jim Harra told Members of Parliament that HMRC was prepared to handle the growing demand for tax services from taxpayers. This came after fears that they would be overwhelmed by unsuspecting savers.

After a period of low interest rates, many savers will be paying tax for the first year this year. The higher interest rate on their savings accounts has pushed their earnings above the tax-free threshold.

This trend is part and parcel of a larger process called “fiscal drag”, where millions of earners are pushed into higher tax brackets as a result rising incomes and frozen tax thresholds.

HMRC released figures in July that showed an additional 1mn taxpayers will pay tax on interest earned this year. Data showed that 2.7mn tax payers would pay £6.6bn for savings interest taxes, an increase from £3.4bn by 2022. In contrast, inheritance tax will raise £7.2bn.

HMRC could be in for a headache if the windfall of savings tax for the Treasury causes confusion among savers who are seeking clarity about their taxes. Some even file for the first-time.

Harriett BALDER, the chairwoman of the Treasury Select Committee, stated that the effects of fiscal drag would be a nightmare scenario for the Tax Authority, who will have to deal with additional calls. She said that the effects of fiscal drag were not limited to savings, but would also affect people’s tax thresholds and allowances.

Laura Suter is a personal finance analyst with AJ Bell. She obtained the HMRC figures for July through a Freedom of Information Request. In recent months, the tax authority came under fire after it closed a self assessment helpline temporarily over the summer in order to redirect resources to areas with higher demand.

In order to keep up with budget cuts, the government is also trying to get more taxpayers to use digital services.

Harra informed the committee that HMRC lacked the resources necessary to meet the growing demand in October.

“The challenge gets tougher as the number of taxpayers increases, and the contact with them grows.” . . “We do not have the resources to increase our efforts in dealing with this contact,” he stated.

In a Wednesday letter to the committee, HMRC’s chief executive stated that the department didn’t know how many tax payers faced greater complexity with their tax affairs.

He said that most of the taxpayers who are facing more complicated tax issues this year already have a place in the system.

Harra stated that the plan to deal with the demand is to “make efficiencies, such our work to reduce the customer contact demand and maximize digital self-service”.

Baldwin raised concerns this week that middle-income families may be surprised when their child benefits are withdrawn once earnings, including extra savings, exceed the £50,000 threshold.

The child benefit will be withdrawn when the income reaches £60,000.

Chancellor Jeremy Hunt knows that there are concerns about this issue, especially because it will impact a wide range of potential Tory candidates. However, government insiders say that the tight state finances mean he is unlikely to offer any relief in his Autumn Statement.

Hunt’s ally noted that the fiscal situation of the chancellor was tight.

The Treasury stated that about 90% of taxpayers do not pay taxes on their savings and invited individuals to take advantage of the “generous”, tax-free allowance of £20,000 for individual savings accounts.

HMRC stated: “For most customers, the tax on interest earned from savings is automatically collected by using their tax code.”

The statement continued: “We’ll contact anyone who is not working, does not receive a pension, or has not completed a direct self-assessment, if they are required to pay taxes on their interest earned from savings.”