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Business Services  •  Personal tax

Self assessment threshold changes to reduce tax return numbers

By RJP LLP on 20 July 2023

Any taxpayers that only receive their income through PAYE and who are earning between £100,000 and £150,000 will no longer be legally required to complete a self assessment tax return from 2023/24 onwards. This might seem a positive development, but it could mean those affected pay more tax in the short term because of a failure to allow for certain tax reliefs they may be due.

HMRC confirmed this change in a recent update and explained that once the taxpayers who meet these criteria submit their 2022-2023 tax returns, they will be assessed against the new £150,000 criteria. Then, if their only source of income is between £100K and £150K and is paid through PAYE, they will be issued with an invitation to exit the self assessment regime.

Note that things get a little confusing if a taxpayer receives any untaxed income, is a partner in a partnership, needs to pay the High Income Child Benefit Charge (HICBC) or if they’re also self-employed with a gross income over £1,000. If any of these conditions apply, they will still need to complete a tax return for the 2023-24 tax year.

Apart from possibly making a mistake and not submitting a tax return when you still need to, what else could go wrong here?

Firstly, some people might end up paying more tax than they should. Taxpayers will still be required to notify HMRC of any tax payable outside of the self assessment regime and some may end up in the highest marginal rate. Taxpayers who go on to lose their personal allowance may end up paying a higher rate of tax – taxed at 60% on all income earned between £100,000 and £125,140.

HMRC may also be slow to adjust people’s tax codes to allow for deductions and tax allowances – such as salary sacrifice schemes, gift aid donations, pension contributions, professional subscriptions and other deductible expenses. If mistakes are made, the and the taxpayer is be entitled to a refund, how will this be determined if full information is not available? Compare this to submitting a tax return which is relatively straightforward.

Ultimately, whilst this new rule will mean that some taxpayers do not have to submit a tax return, you may prefer to continue and will be entitled to do so.

If you have any queries about any aspect of personal or business tax please email us via partners@rjp.co.uk.

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