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Self-assessment threshold change – Need to file a Tax Return?

Self-assessment threshold change – Need to file a Tax Return?

Wednesday 27 September, 2023

In case you missed HMRC’s quiet announcement earlier this year, the thresholds determining who will need to file a Tax Return are being revised for the 2023/24 tax year onwards. The new requirements will affect employees with taxable income between £100,000 and £150,000 who have no other reason to file a tax return.

What’s changing?

From 2023/24 onwards, the income threshold above which taxpayers who only have PAYE income are required to submit a Self-Assessment return will increase from £100,000 to £150,000. Employees with income of less than £150,000 will no longer need to file a tax return, unless they have another reason to do so – for instance if they have untaxed income from property rentals or self-employment, or the High Income Child Benefit Charge applies.

It’s important to stress that the announcement only affects 2023/24 onwards – the thresholds used for 2022/23 remain unchanged, so anyone with taxable income over £100,000 in 2022/23 will still need to file a tax return for that year.

How will people be informed?

HMRC intend to issue a Self-Assessment “exit letter” (SA251) to anyone filing a 2022/23 tax return showing PAYE income of between £100,000 and £150,000 where there are no other circumstances which would oblige them to file a tax return in future.

Our concern is that many unrepresented taxpayers will happily take these letters at face value as saving them from the annual headache of completing a tax return. However, they may not be aware of complications which could result from not filing a tax return each year.

Therefore it is important to speak to your local Accountant, or another qualified authority that will provide the correct advice.

Visionary Accountant are Tax Return experts based in St Albans. We can review your financial position and provide the correct advice to address your concerns. If you fall into the category of individuals needing to file a Tax Return, we can help. 

What problems could SA251 exit letters cause?

The threshold change could result in taxpayers inadvertently overpaying or underpaying tax.

The current £100,000 income threshold makes good sense, as this is the level at which the personal allowance starts to be restricted. Employees with earnings in the £100,000 to £125,140 band gradually have their personal allowance tapered away, and can see their tax liabilities fluctuate considerably with relatively small changes in income, due to the effective 60% marginal tax rates in this income band.

Adding in common complexities such as Gift Aid donations and non-payroll pension contributions further complicates matters, as can bonuses and even small amounts of interest and dividend income.

For example, Jim is an employee whose only source of income is a salary of £110,000. At this level of income, he is not entitled to the full personal allowance. If Jim makes a personal pension contribution he can claim not only the higher-rate tax relief available, but also the tax relief due as a result of reinstating some or all of his personal allowance. If Jim is not obliged to file a tax return, these tax reliefs may go unclaimed.

On the other hand, Jane, an employee with earnings of £100,000, would be entitled to a full personal allowance in the absence of any other income. In 2023/24, she also receives £500 of bank interest and £500 of dividend income. The bank interest and dividend income are within Jane’s personal savings allowance and dividend allowance respectively, so no tax is payable on this unearned income. However, Jane’s total income is now £101,000 – meaning she loses £500 of her personal allowance. In the absence of a tax return Jane will underpay tax by £300 (60% x £500).

It should be noted that, when searching for “SA251 exit letters”, you may find the HMRC’s Self Assessment Manual. This is a very complex document and written for professional and internal use rather than for individuals searching for the easy to understand information. 

Conclusion: Take advice so that you don’t get caught out

James Murray, Accountant in St Albans said:

“Even the simplest looking tax situations can become ridiculously complicated. Tailored advice, built on a deep understanding of the ever-evolving tax landscape, is essential. Our dedicated team at Visionary Accountants is committed to assisting you in this journey, giving you peace of mind. Contact us today for support and advice.”

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