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Three simplifications to self assessment

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As part of its ongoing efforts to simplify income tax services, and perhaps to streamline its own workload, HMRC has introduced three changes to the criteria for filing self assessment tax returns.

5th Dec 2023
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Threshold bumped for 2023/24

The first announcement came in June 2023 when the tax authority bumped the threshold above which individuals with employment income only should file for self assessment (SA) from £100,000 to £150,000. This is effective for the current tax year 2023/24, with any taxpayers currently in self assessment whose earnings on their 2022/23 tax return are between £100,000 and £150,000 receiving an SA251 exit letter.

This received mixed reviews, with some critics concerned the move might have the opposite effect of over-complicating matters for certain taxpayers as amounts such as personal pension payments and gift aid donations will need to be brought into the Pay As You Earn (PAYE) coding. Some taxpayers risk overpaying tax if refunds and reliefs that would have been claimed on the SA return are not correctly processed through PAYE.

Further changes for 2024/25

Nevertheless, ploughing on with the "simplification" strategy the Chancellor announced in the Autumn Statement that from the 2024/25 tax year, the £150,000 threshold will be removed entirely and all individuals with employment as their only substantial source of income will be de-registered from SA and taxed via PAYE.

This change is estimated to lift up to 338,000 taxpayers out of the SA regime in 2024/25.

There are certain circumstances where taxpayers will still need to register and file for SA regardless. This includes where an individual has self-employment income over £1,000; other untaxed income over £2,500 that cannot be taxed via the PAYE system; employment expenses in excess of £2,500; or income from savings and investments over £10,000.

HICBC to be taxed via PAYE

The third change to the SA criteria promises to remove from the above list the notorious High Income Child Benefit Charge (HICBC). Currently, a taxpayer who is otherwise not required to file under SA (because their sole income is from employment for example), but whose adjusted net income exceeds £50,000 and they or their lower earning partner are receiving child benefit, is forced into self assessment by the resulting liability to the HICBC and must register and file a return in order to pay the charge.

In July, the then Financial Secretary to the Treasury Victoria Atkins published a ministerial statement for potential inclusion in the next Finance Bill that promised to remove this requirement:

"The government wants to simplify the process for customers who become liable to the High Income Child Benefit Charge, particularly for those who currently need to register for self assessment to pay the charge. The government will provide details in due course on how it will enable employed customers to pay through their tax code, without the need to register for self assessment."

No further information has been provided since and the HICBC did not feature the Autumn Statement, but when it happens this will be a very welcome change for the many taxpayers unfairly caught out by the unclear HICBC requirements.

Payroll complications

The changes to the SA criteria, when enacted, may simplify the job of the individual taxpayer, but bringing additional income into PAYE and the coding of the HICBC will serve up an extra headache for those working in payroll.

The tapering of the personal allowance is one such complexity that will be brought under the remit of PAYE for the current tax year. In 2023/24, taxpayers see their personal allowance reduced by £1 for every £2 above £100,000. PAYE currently cannot deal with the tapering of the personal allowance, but that will need to change for affected taxpayers no longer meeting the SA criteria from 2023/24 or 2024/25.

ICAEW response

In its response to HMRC's discussion document, ICAEW highlighted the potential increased reliance on the PAYE system. In light of the extra complexity and risk of errors, the professional body recommended that HMRC consider ways to make it easier for taxpayers to check, understand and update their own tax code.

"In the absence of simplification (or alongside it,) HMRC could encourage PAYE taxpayers to take an interest in their tax affairs and to provide updates on changes in circumstances by providing a simple and straightforward digital service for reporting changes that affect their tax code. The services currently available in the personal tax account to update tax codes are not comprehensive or easy to use."

Conclusion

As to why HMRC has decided to bring in these purported 'simplifications' to the SA criteria now, the response from the AccountingWEB community is resoundingly cynical, as summarised by onthespottax: "Currently, we have to look at most changes from HMRC through the lens of lack of staff/not being able to cope with workloads. It's the only way these changes make sense..."

Taxpayers can use HMRC's online tool to check if they need to send a self assessment tax return for 2023/24. Anyone with employment income can, under ITEPA 2003, register to file for self assessment voluntarily and many with more complex affairs or claims to make may decide that this is the simpler path to tread.

*5 December 2023: This article was amended to clarify the status and timings of the potential High Income Child Benefit Charge changes*

Replies (29)

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By richard thomas
05th Dec 2023 14:14

"The third change to the SA criteria removes from the above list the notorious High Income Child Benefit Charge (HICBC)."

"In July, the then Financial Secretary to the Treasury Victoria Atkins published draft legislation for potential inclusion in the next Finance Bill that promised to remove this requirement:"

Neither of these statements can be reconciled with the legislative proposals announced. In particular the hyperlink in "draft legislation" is to the Ministerial Statement which includes legislative proposals but it also includes "administrative" measures which include HICBC matters which promises only to enable coding out of HICBC, the legislation for which, reg 14B of the PAYE Regulations has been on the (metaphorical) statute book since 2012 and is referred to as active in the PAYE Manual.

Is there some other draft legislation I have missed?

Thanks (4)
Replying to richard thomas:
Amy Chin
By Amy Chin
05th Dec 2023 15:03

Hi Richard

No, you haven't missed the draft legislation. The ministerial statement promises further details which as yet have not been provided. I've updated the article to make that clear.

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Replying to richard thomas:
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By petestar1969
11th Dec 2023 09:49

Hmm, and how will the PAYE system cope with fluctuating income? It may be that one year someone owes the HICBC, so its coded in, but next year they earn less (or their other half earns more than them), so the first one doesn't owe it in the second year.

A better idea would be to scrap the HICBC altogether or set an income ceiling on who can apply for it.

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By FactChecker
05th Dec 2023 16:13

".. The tapering of the personal allowance is one such complexity that will be brought under the remit of PAYE for the current tax year. In 2023/24, taxpayers see their personal allowance reduced by £1 for every £2 above £100,000. PAYE currently cannot deal with the tapering of the personal allowance"

Really?
Most payrolls have been quite comfortable with managing this WHEN the pay > £100k is part of what is being processed through PAYE.
The 'problem' arises WHEN pay < £100k but other income (not known to the payroll) takes the total over that boundary.

Which takes you back to the central push-me-pull-you at the heart of HMRC's deliberations - where is the acceptable (to them) balance between getting tax right first time (the tax code route) and getting it right eventually.
The former is believed by HMRC (despite all the evidence to the contrary) to be inherently more efficient because they see it as part of the 'digitisation' strategy ... but it continues to screw-up taxpayers (who then spend forever trying to get adjustments made retrospectively via the under-resourced HMRC channels), who unsurprisingly would prefer to use SA (with a reasonable chance of getting it right first time albeit later)!

Only the current bunch of incompetents (govt/treasury/hmrc et al) could even begin to believe that these changes constitute 'simplification'.

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By FactChecker
05th Dec 2023 16:21

"There are certain circumstances where taxpayers will still need to register and file for SA regardless.
This includes where an individual has self-employment income over £1,000; other untaxed income over £2,500 that cannot be taxed via the PAYE system; employment expenses in excess of £2,500; or income from savings and investments over £10,000."

So does £5k pa of dividends (from publicly listed companies), say, trigger the "other untaxed income over £2,500 that cannot be taxed via the PAYE system"
.. OR does it escape the trigger as not being "income from savings and investments over £10,000"?

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By More unearned luck
05th Dec 2023 17:11

Some higher earners can only be lifted out of the tax net in 2023/24 if HMRC uses the legislation that Richard mentions. But it seems that they aren't doing so.

A problem regarding coding of HICBC is that in most cases HMRC will need to know the adjusted net incomes of two taxpayers. Without a tax return how will HMRC know either's non-PAYE income and their Gift Aid and pension contribution relief (in non-net pay cases)? Then there is the complexities of modern relationships. There are probably good reasons why HMRC have resisted the coding of HICBC for its first 11 years. Will their data gathering system and PAYE software up to the job?

The best way to simplify both HICBC and the means testing of the PA is to abolish both and plug the hole with 1 or 2 percentage points on the HR band and AR band.

Will people taken out of SA chose to file voluntary returns?

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By Not Anonymous
05th Dec 2023 21:59

The "Payroll Complications" part of this article is somewhat misleading.

PAYE deals with tapering of the Personal Allowance and I'm sure it has done for as long as it has been in existence. It could no doubt be more reactive to changes of adjusted net income but it does do it.

It isn't something for payroll to contend with either, payrolls job is to operate the tax code provided by HMRC (or specified from the new starter declaration).

What HMRC haven't previously done is finalise these cases under PAYE, they have always, as far as I can remember, been within Self Assessment for the purposes of determining the actual liability/refund for the year.

So that is new but having a PAYE code with tapered Personal Allowance is nothing new at all.

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Replying to Not Anonymous:
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By rmillaree
06th Dec 2023 10:03

PAYE deals with tapering of the Personal Allowance and I'm sure it has done for as long as it has been in existence. It could no doubt be more reactive to changes of adjusted net income but it does do it.

Its nonsense to suggest it deals with it an any sort of "effective manner"- unless you know the exact salary in advance its as useful as 3 monthly submissions for sole traders - waste of time. reality is anyone in the 100k -125k taper zone is likely to have a wildly innacurate coding for completely stupid reasons.

i rang up just yesterday to remove home working from clients code - that one change resulted in 10k reduction in allowance as hmrc re-assessed the yearly projections. The reality here is that the initial projections are nonsense the new projections will probably be nonsense (many high earners have lumpy random bonuses and the like)

At its most basic codings do make an effort buut its like asking a random blind deaf person to have a go at conducting the london symphony orchestra.

Note a sensible solution here would be for these items to be customer/agenmt lead if they so choose and for that to be an automatic right - if they so choose. will they allow peeps who know best to actively easy sort by logging in and updating the 4 or 5 important buttons i suspect not.

I can almost gaurantee the system wont even cross check to see if child benfit claims have even stopped hmrc are that stupid.

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Replying to Not Anonymous:
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By raycad
06th Dec 2023 10:55

Replying to "Not Anonymous":

"PAYE deals with tapering of the Personal Allowance ....."

Well, yes, it "deals with" it, but so, so badly. To begin with, for those filing SA returns, the current year's tax code will in most cases reflect the income and deductions shown in the 21/22 SATR. And for those who have filed the 22/23 return the tax code has or will probably be adjusted on a week one/month one basis, which can cause a huge and often unexpected uplift in the monthly PAYE tax.

Yes, HMRC have the CY RTI figures but the algorithm they use just takes the YTD figures and pro-ratas them. So for someone who gets, say, a 10k bonus in April they are treated as earning annually 12 times the total April earnings. (This is the same problem with those taking pension income drawdown). It is totally unreliable to expect the PAYE system to collect the right amount of tax, absent an SA return.

As others have commented, this is not about simplification at all - it's purely about "getting the numbers down so that we can cope". (Except they won't cope anyway!)

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By SteveHa
06th Dec 2023 08:36

I do wish people would stop using "need to" and "be required" when talking about HMRC's made up rules regarding who must complete a Tax Return.

The only requirement, is that HMRC have issued a notice to file.

Let's not perpetuate HMRC myths.

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By rmillaree
06th Dec 2023 09:56

omg whata joke hmrc are

do they not understand that all the additional complexities they add to the "creaking paye system" are making extra work for themselves - can anyone argue that dynamic coding has not been a complete disaster.

If i thought any of these changes would be done in logical manner i would be happy - but i can bet my bottom dollar peps will be up in arms when it turns out they owe £3k at tax year end after relying on hmrc to be mystic me ref their pension contributions and income levels.

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Morph
By kevinringer
06th Dec 2023 10:03

It took HMRC 8 years to admit that MTD ITSA is more complex than HMRC had thought. That proves how poor HMRC's grasp of tax is. Therefore, whenever HMRC say 'simplification', that is based on HMRC's poor grasp of tax.

HICBC moving from SA to PAYE: how will HMRC identify adjusted net income when pension contributions, dividends, Gift Aid donations etc are no longer reported through SA? There is no PAYE mechanism for reporting these. Does that mean the 338,000 taxpayers removed from SA will have to phone HMRC? How will HMRC cope with these extra calls, every year, when HMRC have reduced the number of call handlers by 30%?

HMRC are under political pressure to remove people from SA. I can understand why; how can any government uphold a tax system that is so complex that individuals have to report everything to HMRC, and need professional advisors to make sure they don't fall foul and also minimise their tax. But removing people from SA does not simplify tax. But if HMRC have such a poor grasp of tax, I don't suppose we can expect MPs to understand it either.

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By David Winch
06th Dec 2023 10:05

I'm not an Accountant but "other untaxed income over £2,500 that cannot be taxed via the PAYE system" strikes me as encompassing all recipients of the State Old Age Pension. Does this mean all OAPs will have to "register and file for SA regardless"?

What do you specialists think?

David Winch
Sales & Marketing Consultant, Cambridge

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Replying to David Winch:
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By FactChecker
06th Dec 2023 10:44

I don't think it *means* anything ... the whole 'list' provided by HMRC is palpable nonsense (inconsistent, illogical and plain wrong)!

As others have commented on previous threads, we've reached the point where many OAPs (or Senior Citizens as we've been known for over a decade!) receive SP in excess of PA ... and this will rapidly increase with the combination of triple-locked pensions vs frozen PAs.
In the meantime many whose SP is just under the current PA will nevertheless trigger taxability due to savings interest (which have improved noticeably along with racing interest rates) or even dividends - all of which were for some random reason removed from the concept of being tax-deducted at source.

HMRC's concept of simplification (aka making life simpler for them and so in their minds reducing the need for human resources) is to throw in the air any old unproven process ... without consideration of how it would operate for taxpayers or, indeed, interoperate with any of HMRC's other processes.

I hate to sound defeatist, but they have basically given up!

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Replying to FactChecker:
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By FactChecker
06th Dec 2023 11:00

Nearly forgot to mention ... HMRC will claim that David's OAPs will only need the other SA (Simple Assessment not Self Assessment).

But that makes life for the average OAP *more* complex - and not just because only HMRC could choose the same two-letter acronym for similar but fundamentally different processes.
The onus is still on the taxpayer to get things right, but now that consists of double-checking the figures sent to you by HMRC (which are rarely complete and can contain actual errors) because otherwise their figures stand (by default).
If you disagree with the Simple Assessment, you have an initial appeal period of 60 days from the date of the Simple Assessment being issued ... and if you do not object to it within those 60 days, it is automatically finalised!

I can't speak for all recipients of SP, but I find that far more threatening (and probably unreliable) than Self Assessment ... so continue to insist on being kept on *that* SA list.

Thanks (7)
Replying to David Winch:
Morph
By kevinringer
06th Dec 2023 10:48

State pension needs to be put onto the PAYE system. I raised this on HMRC's Agent Forum yesterday. The total annual state pension used to be well below the Personal Allowance level. For example in 2007 the state pension was 60% of the Age Allowance. By 2024 state pension will be 91.5% of the Personal Allowance, and some taxpayers will receive state pension that is more than their Personal Allowance. 3 million taxpayers will need to pay tax on savings income because of the increase in savings interest rate v freezing of allowances. There will also be an increase in taxpayers paying tax on dividends because next year the Dividend Allowance will have reduced by 90%. Currently, if these tax payers only pension is state pension, they won't be able to pay the tax via PAYE so will be expected to pay the tax in one hit.

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Replying to kevinringer:
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By FactChecker
06th Dec 2023 11:05

"Currently, if these tax payers only pension is state pension, they won't be able to pay the tax via PAYE so will be expected to pay the tax in one hit."

Totally agree ... but it's worse than that.
It's not just where 'only pension is SP' but where all other elements of their income are not caught by PAYE or any other form of deducted-at-source ... or even merely where some of that other income *is* caught by PAYE, but that's not enough to balance out the total tax due for the year.

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Replying to David Winch:
RLI
By lionofludesch
07th Dec 2023 14:10

David Winch wrote:

I'm not an Accountant but "other untaxed income over £2,500 that cannot be taxed via the PAYE system" strikes me as encompassing all recipients of the State Old Age Pension. Does this mean all OAPs will have to "register and file for SA regardless"?

What do you specialists think?

David Winch
Sales & Marketing Consultant, Cambridge

State retirement pension has been taxed through the PAYE system for donkey's years. They just allocate part of your personal allowance to it.

Though the gap between pension and allowance is getting smaller .....

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Replying to lionofludesch:
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By David Winch
14th Dec 2023 14:30

I accept your comment but I am guessing many Pensioners will not be in any PAYE system when State Pension is their only income.

David Winch
Sales & Marketing Consultant, Cambridge

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Replying to David Winch:
RLI
By lionofludesch
14th Dec 2023 14:55

David Winch wrote:

I accept your comment but I am guessing many Pensioners will not be in any PAYE system when State Pension is their only income.

David Winch
Sales & Marketing Consultant, Cambridge

If it is their only income, yes. But there are plenty of pensioners with a privare pension and some of those have untaxed interest or dividendincome to declare.

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By Homeworker
06th Dec 2023 11:25

I deal with many pensioners and most have income from savings and shares:
1. Not everyone is willing (or able) to go online to check their own tax code.
2. Even if they do, they will probably not understand the entries in it (otherwise why do so many clients ask me to check theirs).
3. Tax codes are inevitably always based on out of date information, which may not be updated for many months - some banks are really slow at sending out the information about savings interest.
4. The delays in interest figures being produced can result in multiple code changes during the year.
5. HMRC cannot tell what dividends taxpayers (sorry, "customers") receive unless they ask for the information or it is volunteered.
For all of these reasons, I encourage pensioners to stay within the self assessment system and only charge them a small fee for the returns. I had one client removed who had around six coding notices issued as they were changed every time HMRC received bank details and I wasted a lot of time phoning up to get the codes changed. She also got thoroughly confused about the resulting under- and potential underpayments and in the end we decided it would be far better for her to resume completing tax returns, which gave her certainty and confidence in the amounts she was being asked to pay.

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By Ian McTernan CTA
06th Dec 2023 15:44

Not one of my clients earning over 100k will just be dealt with under PAYE, and will all have to submit a self assessment form.

So much for 'simplifying' anything.

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By JackH
06th Dec 2023 16:56

I'm cynical as ever. This is HMRC's mission to do as little work as possible relying on discovery assessments and time limits on claims to pick up later what they miss, above a tolerance threshold with 80:20 probability, with the potential cost further minimised by interest and penalties.

If you do not file a voluntary return on time under s12D TMA you do not get the protection of s29(5) because there was never a return for HMRC to enquire into. Also if you have a tax liability and do not make a voluntary return by October 31 (you will often find that you CANNOT make an online return if you are outside the criteria, unless you tell lies) you will be in default once the deadline has passed. You may well be careless at least in this regard.

HMRC places the onus on the taxpayer to decide whether to send in a return, or to contact them if in doubt. They invite you to check whether you need to send a return. They will already have sent some taxpayers a letter telling them they do not have to file next year based on their last filed return. https://www.gov.uk/check-if-you-need-tax-return has the online tool.

If you use this and answer the questions as having only a State pension, total income under £50,000, interest and dividends under £10,000 EACH, you arrive at https://www.gov.uk/check-if-you-need-tax-return/y/no/no/yes-state-pensio.... You get the confusing message that despite all this "You must tell HMRC if you had:
• more than £2,000 income from share dividends
• between £1,000 and £2,500 in any other untaxed income, such as commission or money from renting out a property".

It will be obvious that a pensioner with only EITHER interest or dividends just above the relevant threshold has a liability. If they have an hour to spare they can ring the Helpline. I don't know what happens then, perhaps HMRC send out a return form. Failure to notify by October 5 involves a penalty (leaflet CCFS11) but worse will be a penalty for failure to file and pay. And a 20 year assessment time limit!

So this is largely a post-event Gotcha AI system with HMRC tempering penalties but not interest as it suits them or not through a reasonable excuse filter. Would you buy a used car from these people?

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Replying to JackH:
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By rmillaree
06th Dec 2023 17:39

". I don't know what happens then, perhaps HMRC send out a return form."

the process is easy and works if you can through.

you just say sue has 9000 of dividend income or rental profit of 1400 - and they issue or amend p800 there and then as appropiate - nomrlaly they send outy calc advising tax wil be coded following year

I try not to jump the gun with these - i prefer to wait to see if p800 come sthrough for another reason and then ring up - it gets messy if you adjustm one way then hmrc change that figure later.

Note these can get messy with roll ups of tax due being coded out and the like - i dont disagree with anyone who says sa return with nowt coded out is the easiest way to go and monitor everything

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By moneymanager
06th Dec 2023 19:11

"simplification"?

Light bulbs, how many ministers ( or HMRC officials or any other object of derision), does it take to change one?

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Replying to moneymanager:
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By FactChecker
07th Dec 2023 11:53

Suspect they've confused 'spifflication' with 'simplification' ... an easy mistake after all those self-congratulatory endorsements of themselves!

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By Sue Murby
08th Dec 2023 16:36

"There are certain circumstances where taxpayers will still need to register and file for SA regardless. This includes where an individual has self-employment income over £1,000;"

Does this mean that any one with self employed income under £1000 will not be able to register, or more importantly, claim tax relief for losses?

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Replying to Sue Murby:
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By rmillaree
08th Dec 2023 16:48

Does this mean that any one with self employed income under £1000 will not be able to register, or more importantly, claim tax relief for losses?

Nope

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Replying to Sue Murby:
RLI
By lionofludesch
08th Dec 2023 16:57

Sue Murby wrote:

"There are certain circumstances where taxpayers will still need to register and file for SA regardless. This includes where an individual has self-employment income over £1,000;"

Does this mean that any one with self employed income under £1000 will not be able to register, or more importantly, claim tax relief for losses?

It's not what it says.

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