Background
From 6 April 2023 the employment income threshold, whereby an individual is automatically required to file a self assessment tax return even if all income was taxed at source through PAYE, increased from £100,000 to £150,000. This threshold has then be removed altogether from 6 April 2024.
HM Revenue & Customs (HMRC) have recently been sending letters to affected taxpayers informing them that they do not need to complete a tax return if they submitted a return for the 2022/23 tax year with income of between £100,000 and £150,000 that was taxed through PAYE, and they do not meet any of the other criteria for being in self assessment. However, individuals concerned need to take care since, although this is a welcome simplification, just because HMRC informs them that they no longer need to file a tax return, they should not assume they no longer have tax to pay. In fact with the reduction in various tax allowances that have recently been made some individuals may find that they are actually still required to submit a self assessment tax return.
Detail
Prior to 6 April 2023, taxpayers with earnings above £100,000 were required to file a tax return, even if all income was taxed at source through PAYE and they had no other income. Following the increase in the employment income threshold to £150,000 from 6 April 2023, individuals earning between £100,000 and £150,000 will no longer automatically have to file a self assessment return for the 2023/24 tax year if they are paid through PAYE and have no other income.
For the 2023/24 tax year, taxpayers will still need to submit a tax return if their income taxed through PAYE is below £150,000 but they meet one of the other criteria, such as:
- they receive any untaxed income over £2,500;
- they are a partner in a business partnership;
- they pay the high income child benefit charge (HICBC);
- they are self-employed with gross business income over £1,000.
From the tax year 2024/25 onwards, the income threshold to complete a tax return for PAYE only taxpayers will be removed completely. However, individuals will still be required to submit a return if they meet any of the other criteria listed above.
Although the above simplification in being required to file a self assessment return is welcome, taxpayers need to be aware there are potential tax traps whereby they could still have additional tax to pay and/or still be required to submit a tax return. HMRC states that you only need to submit a tax when your ‘income from savings or investments is over £10,000’. However, with rising returns on savings and investments, individuals should be aware that interest will still be subject to income tax if it exceeds the personal savings allowance (PSA) of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers, those with income over £150,000, receive no PSA.
Similarly, dividend income will be subject to income tax if it exceeds the dividend allowance, which has reduced to £1,000 for 2023/24 and falls further to £500 for the 2024/25 tax year.
Banks are required to notify HMRC of interest and HMRC will then in the first instance seek to collect tax through a PAYE coding adjustment. If taxpayers do not have sufficient PAYE income to collect the tax on the interest income or if there is a delay in HMRC becoming aware of an amount of savings or investment income, HMRC will notify the taxpayer with a tax demand. This can often come as a shock as it is not uncommon for taxpayers to receive tax demands or PAYE code adjustments for unpaid tax up to four years after the tax year in which the bank interest was paid.
Individuals should also be aware that there is no similar tax collection mechanism for dividend income. Therefore, taxpayers with taxable dividends of more than £500 but less than £10,000 will now need to inform HMRC to have the tax collected. Taxpayers can notify HMRC of their other income, such as dividend and savings income, through the Personal Tax Account or through the PAYE helpline.
Although issues with HMRC’s customer service and difficulty contacting HMRC have been widely reported, it remains the obligation of the taxpayer to notify HMRC of untaxed income and ensure their tax affairs remain compliant. HMRC recommends people use its online tool to check whether they need to submit a tax return for the 2023/24 tax year.
A final point to note is that HMRC does not always automatically remove taxpayers from self assessment should they no longer meet the filing criteria. If taxpayers rely on HMRC to get this right, and they have no other untaxed income, they could find themselves burdened with an unnecessary administrative task, along with the threat of penalties for non-compliance.
The good news is that just because a filing notice has been issued does not mean a return must be filed. It is possible to request HMRC remove an individual from self assessment where they satisfy the criteria.
If you have any questions on the above or require more information on whether or not you are required to submit a self assessment tax return please contact our Tax Director, Jenny Marks.
To see our other news items please visit our Muras Baker Jones – Blog.