TTF Tackles the Money Monster Under Your Bed: Do I Need to Complete a Tax Return?

"I’ve been earning £110,000 a year for a while now, and ever since my salary crossed the £100,000 threshold, I’ve been required to file a tax return. Initially, I thought it was just part of a normal process for higher earners, even though my income is taxed through PAYE, and there’s nothing complex about my financial situation.

Recently, I’ve been hearing that the rules have changed, and now people only need to do a tax return if their income exceeds £150,000. If that’s true, it seems a bit unfair. I’ve had to go through the hassle of filing every year when it was really just about adjusting my personal allowance for the high-income threshold. It’s been a pain to gather all the information and deal with HMRC, especially since my taxes are already deducted at source by my employer.

What’s confusing is that I haven’t received a letter from HMRC this year saying I need to complete a return. Usually, they send a notice or reminder, but this time, there’s been nothing. I’m wondering if this is their way of saying I don’t need to do it anymore. Or maybe I’ve been overlooked?

I’d love to avoid the whole process. But at the same time, I don’t want to risk missing something important and getting fined for not filing. I’ve heard horror stories of people facing penalties for small mistakes or misunderstandings, and I don’t want to end up in that situation.

Am I safe to assume I don’t need to do a tax return this year, or is it better to play it safe and file anyway, just in case?"

Let's take a look at the latest updates and guidelines to give you the more precise answer for your circumstances...

Under previous tax rules, individuals earning more than £100,000 annually, including those taxed solely through PAYE, were required to file a self-assessment tax return. This was primarily to account for the reduction in their Personal Allowance, which decreases by £1 for every £2 earned above £100,000. When income exceeds £125,140, the allowance is completely withdrawn, effectively creating a "60% tax trap."

However, as of April 2023, the threshold for filing a self-assessment tax return increased to £150,000 for those with PAYE income alone. This means that if you earn less than £150,000 and all your income is taxed at source via PAYE, you are no longer required to file a return—provided there are no complicating factors such as untaxed income, additional sources of income, or specific tax liabilities like the High Income Child Benefit Charge.

With regards to your specific situation...

Since your income of £110,000 falls under the £150,000 threshold and is fully taxed through PAYE, you are not required to file a self-assessment tax return for the current tax year under the revised rules. The absence of a notice from HMRC supports this. However, it’s important to verify that your tax code has been updated to reflect the reduction in your Personal Allowance, as this ensures accurate tax deductions at source.

If you believe your tax code does not fully account for the tapering of your allowance or suspect an underpayment, contacting HMRC for clarification would be prudent.

There are still circumstances under which a tax return would be required, even for those earning below £150,000. You must file a return if any of the following apply:

• You had untaxed income, such as rental income, savings interest, dividends, or foreign income.

• You needed to pay Capital Gains Tax on the sale or disposal of an asset.

• You were subject to the High Income Child Benefit Charge because your income exceeded £50,000, and you or your partner claimed Child Benefit.

• You were self-employed or a partner in a business partnership.

• You had other taxable income or gains not covered by PAYE.

It is worth noting that HMRC expects taxpayers to inform them if they believe they no longer need to file a tax return. If you received a notice to file in the past but believe your circumstances have changed, you should contact HMRC to confirm and request the withdrawal of the notice.

Failing to file a return when one is required could result in penalties, even if no additional tax is due. The fines increase the longer the return is overdue, so ensuring clarity with HMRC is crucial.

It might also be worth considering...

Although filing a self-assessment tax return is no longer mandatory for your income level, you may still find it beneficial. Completing a return can provide:

1. A detailed review of your tax position.

2. Assurance that your tax deductions are accurate.

3. An opportunity to claim any overlooked tax reliefs.

While it appears you no longer need to file a self-assessment tax return based on your salary and PAYE status, I recommend contacting HMRC to confirm this and ensure that your tax code fully reflects the tapering of your Personal Allowance. This will provide clarity and peace of mind while avoiding any potential fines or issues down the line.

If you would like assistance in reviewing your tax affairs or liaising with HMRC, we’d be happy to help. Contact us today on freephone 0800 0016 878 for a free consultation on all tax issues, or fill out the handy form below and we'll get back to you as soon as possible. Alternatively, you can email us at info@thetaxfaculty.co.uk

Capital Gains Tax Expertise: The Tax Faculty LLP Managing Partner Charles Tateson Named UK Capital Gains Tax Advisor of the Year 2023

The Finance Monthly Taxation Awards recognises the achievements of tax professionals from around the globe.

Winning such an award is no small feat. It is a reflection of hard work, extensive knowledge, and an ability to navigate the intricacies of the UK tax system.

Read more about Charles and the award here.

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