Our accountants in St Albans are often posed the, not so straight forward, question...
Do I need to file a tax return this year?
Whether you are a business owner, director, employed professional, or self-employed individual, the need to file a tax return is a common requirement. Furthermore, if you hold various savings accounts generating interest, especially during recent periods of elevated interest rates, you may find yourself brought into the tax return threshold.
This highlights the importance of seeking professional assistance from a local accountant in St Albans, who can navigate the intricacies of diverse financial situations and ensure accurate and compliant tax filings. In this article you will find important information to help you answer the question whether you need to file a tax return.
Who must file a tax return with HMRC?
Broadly, HMRC guidance states that you must send a tax return if, in the last tax year (6 April to 5 April), any of the following applied:
- you were self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on)
- you were a partner in a business partnership
- you had a total taxable income of more than £100,000
- you had to pay the High Income Child Benefit Charge
You may also need to send a tax return if you have any untaxed income, such as:
- some COVID-19 grant or support payments
- money from renting out a property
- tips and commission
- income from savings, investments and dividends
- foreign income
What qualifies as Taxable Income?
- money you earn from employment
- profits you make if you’re self-employed, including from services you sell through websites or apps
- some state benefits
- grants and support payments made to you or your business because of coronavirus, including the Self-Employment Income Support Scheme, the Coronavirus Job Retention Scheme, the Small Business Grant Fund or the Retail, Hospitality and Leisure Grant Fund
- the Test and Trace Support Payment in England (or the Self-isolation Support Payment in Scotland and the Self-isolation Support Scheme in Wales)
- most pensions, including state pensions, company and personal pensions and retirement annuities
- rental income (unless you’re a live-in landlord and get less than the Rent a Room Scheme limit)
- benefits you get from your job
- income from a trust
- interest on savings over your savings allowance
What is the High Income Child Benefit Charge?
You may have to pay the High Income Child Benefit Charge if you, or your partner, have an individual income that’s over £50,000 and either:
- you or your partner get Child Benefit
- someone else gets Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep
It does not matter if the child living with you is not your own child.
If your adjusted net income is over £50,000 and so is your partner’s, then whoever has the higher income is responsible for paying the tax charge. ‘Partner’ means someone you’re not permanently separated from who you’re married to, in a civil partnership with or living with as if you were.
You can choose to either:
- get Child Benefit payments and pay any tax charge at the end of each tax year via self-assessment
- opt out of getting payments and not pay the tax charge
What's changed?
The Autumn Statement 2023 announced another change regarding the criteria for filing an Income Tax Self-Assessment tax return. This just adds to the confusion for taxpayers, as it is the third announcement this year.
Let’s try and make this clear:
- Agent Update 108 in May 2023 announced the threshold income for the need to submit a Self-Assessment tax return would increase from £100,000 to £150,000 from April 2024
- On 18 July 2023, a written House of Lords statement from a Treasury Minister outlined plans to make ‘administrative Changes to the High Income Child Benefit Charge’ allowing it to be paid via the tax code rather than the requirement for registering for Self-Assessment. This was a policy announcement but there have been no further details.
- In November 2023 at the Autumn Statement, the Chancellor of the Exchequer announced that, from the tax year 2024/2025, the threshold would be abolished altogether, removing ‘up to 338,000 taxpayers’ from the requirement to submit a tax return. This is where all income is taxed via Pay As You Earn (PAYE)
Confused?! We suspect there will be more changes and more announcements as HMRC continues to roll out its digital routes.
What the announcements do not make clear is that there are some situations where a tax return is necessary. For example, if you have a client that has registered for Self-Assessment, there is an ongoing obligation even though some of the criteria may have changed.
What do you need to know?
It is important to note that the Self-Assessment threshold for tax year 2022/23 is still £100,000. This is for returns due on or before 31 January 2024.
If the 2022/23 return indicates income over £100,000, HMRC should send the individual an ‘exit letter’, providing they do not meet any of the other criteria for submitting. This is, for example:
- If the taxpayer is self-employed as a ‘sole trader’ earning more than £1,000 in taxable income
- If the taxpayer wants to claims some Income Tax reliefs
- Liable to the High Income Child Benefit Charge (unless things change in that regard), and
- For declaring untaxed income, for example, income from renting properties
The exit letter will say that, based on information in the last tax return, they do not have to complete one in the future. However, this will not be an automatic de-registration from Self-Assessment and taxpayers need to take proactive action.
We very much look forward to clear and comprehensive guidance, and soon!
Tax Returns for clients in St Albans
As the tax season approaches, both businesses and individuals may find themselves in need of professional accounting assistance to ensure compliance and maximise tax savings. If you live or work in St Albans, you will no doubt prefer a local accountant to help to complete and file your tax return.
Organisation is key when preparing for a tax return. Try to keep meticulous records of all income, expenses, and relevant documents throughout the year to streamline the filing process. This not only saves time but also ensures accuracy and minimises the risk of errors. Handing over a brown envelope of unidentifiable receipts to your local accountant isn’t the most efficient way to start a tax return.
Moreover, proactive communication with your accountant is essential. Schedule regular meetings to discuss your financial situation, address any concerns, and explore potential deductions or credits that may apply to your case. A collaborative approach with your accountant can lead to valuable insights and strategic financial planning as well as tax savings.
Local St Albans accountant James Murray said:
“St Albans residents and businesses can navigate the complexities of tax returns successfully by enlisting the help of a knowledgeable local accountant, maintaining meticulous records, and fostering open communication. And, if managed correctly, with the right guidance, this tax season can become less... ‘taxing’.”