HMRC change means some high-earners won’t pay the right amount of tax

The change will see the threshold at which those with taxable income are required to file a tax return raised from £100,000 to £150,000, from the current tax year (ending 5 April 2024) onwards. The announcement¹ was made to tax agents and accountants, but lacked wider publicity.

The ATT is concerned that this increase will lead to some individuals inadvertently paying the wrong amount of tax. HMRC have made the change without consultation, and ATT worries it may have been introduced primarily as a cost saving measure without consideration of the wider impacts.

Jon Stride, Vice Chair of the ATT Technical Steering Group, said:

“Just as HMRC launched a campaign encouraging people to file their Self-Assessment returns for the 2022/23 tax year early, they also quietly announced a change to who they expect to file returns for the current tax year. HMRC did not consult on the rule-change and it has so far been poorly publicised.

“The requirement to submit a tax return where your income exceeds £100,000² makes perfect sense. Even relatively small differences in income in the £100,000 to £125,140 income range can have surprising impacts on the amount of tax payable. Requiring people with income over £100,000 to submit a tax return acts as a sensible way of checking they’ve been given the right amount of personal allowance for that year, and that they pay the correct tax.

“At a time when those in the income bracket of £100,000 to £150,000 are more likely to have tax issues due to changing thresholds, this change is completely misjudged, and not one that was called for. The lack of publicity could mean that some people in this band could end up submitting tax returns that they didn't need to. This could even lead to greater costs, rather than savings, for HMRC.”

The ATT says the risk of paying the wrong amount of tax as a result of this rule-change will mainly affect high-paid employees with little or no other income, as they’re unlikely to have any obligation to keep submitting tax returns. However, some could also miss out on tax reliefs.³

Jon Stride said:

“The obvious outcome of this rule-change will be a reduction in the number of tax returns submitted each year. At a time when HMRC’s resources are stretched to breaking point, and their service standards are attracting frequent criticism, the appeal of reducing the number of taxpayers they have to deal with needs to be balanced against the potential tax errors this change could cause.”

Notes for editors:

1. HMRC Issue 108 of Agent Update: Self Assessment threshold change

2. At that level, the amount of tax-free personal allowance you’re entitled to starts to be reduced, so by the time your income reaches £125,140, you don’t get any personal allowance at all.

3. At its simplest, someone whose only income is salary of £105,000 will correctly lose out on some of their personal allowance. But that person might pay into a personal pension outside of their employment, or they might make Gift Aid donations to charity. Either of these would entitle them to tax relief, and could result in their personal allowance being partially, or wholly reinstated. However, without a tax return, HMRC are unlikely to be aware of these payments. As a result, this person will pay too much tax and the potential repayment due to them may go unclaimed. On the other hand, someone with salary of £100,000 should receive a full personal allowance. But if they have other sources of income (such as dividends or bank interest) this should result in their personal allowance being restricted, even if those amounts are not subject to tax as they fall within another specific allowance.