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A picture of a Tax Calculation statement paper with envelopes AccountingWEB - Self assessment threshold bumped to £150,000
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Self assessment threshold bumped to £150,000

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Taxpayers whose only income is taxed under PAYE, and who earn between £100,000 and £150,000, will be removed from self assessment from tax year 2023/24 onwards, which could result in those affected paying more tax.

12th Jun 2023
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In May’s Agent Update, HMRC reported that the self assessment threshold for taxpayers taxed through PAYE will be rising from £100,000 to £150,000 from tax year 2023/24. 

The self assessment threshold for PAYE taxpayers for 2022 to 2023 remains unchanged at £100,000 and taxpayers will receive the usual notice to file a tax return. 

However, HMRC said that once these taxpayers submit their 2022 to 2023 tax return they will be assessed against the new £150,000 criteria and if their 2022/23 tax return shows income between £100,000 and £150,000 that is taxed through PAYE, and they have no other substantive sources of income, they will receive a SA251 exit letter. 

However, these taxpayers will still need to submit a tax return for 2023/24 if they’re in receipt of any untaxed income, are a partner in a business partnership, need to pay the High Income Child Benefit Charge (HICBC) or if they’re self-employed with a gross income over £1,000. 

Explaining the change, an HMRC spokesperson told AccountingWEB: “This change will reduce the administrative burden for customers, reduce costs and make the self assessment process more efficient.

“It does not reduce or change the tax liability of those affected. Income tax will continue to be collected through the PAYE system.”

HMRC said improvements to its IT systems have allowed it to increase the threshold. 

The tax department also added that any taxpayers will still need to file an SA tax return if they have other untaxed income that cannot be coded out and taxed via PAYE.

Will taxpayers overpay tax?

However, critics have said the plan to take people with PAYE earnings below £150,000 out of the self assessment system may end up with many taxpayers overpaying taxes. 

Commenting on Any Answers, AccountingWEB reader kevinringer said he attended a Teams meeting with HMRC and reported that these taxpayers will still be required to notify HMRC of any tax payable but not through the self assessment system. He said this means phoning or writing to HMRC instead. 

“I would have thought HMRC would prefer these clients to be in self assessment (SA) because surely it requires less HMRC resources to process an SA return (especially if submitted online) than having to process a letter or phone call,” said kevinringer.  

More complicated

Robert Salter, a tax technical specialist at Blick Rothenberg, said the increase to the threshold may make the tax affairs more complicated for the affected PAYE taxpayers than someone earning a much higher salary. In addition, those losing their personal allowance are paying an effective tax rate of 60% on their income between £100,000 and £125,140 per annum.

Salter added: “While HMRC should – in theory – be able to adjust people’s tax affairs for various types of deduction and allowance (for example, gift aid donations, personal pension contributions, professional subscriptions and business expenses), with a tax return, the reality is that HMRC consistently fails to automatically adjust a taxpayer’s tax affairs for such matters. This is even though it should get some of the above data automatically from third parties.

“By taking employees in the £100k–150k threshold out of self assessment, there is a real risk that people in this range will end up paying too much tax and not getting refunds, to which they are genuinely entitled.”

Repercussions of the threshold change

AccountingWEB members have questioned the legality of the change. Regular Any Answers’ contributor SteveHa said, “HMRC can’t change the threshold for completing a return. They can only change their own threshold using which they will issue a notice to file. There is no such threshold in law.”

While other users have flagged other potential repercussions of this change. JonHarris99 raised concern that the threshold change could result in relief at source (RAS) pension contributors to miss out on higher rate relief, while Londonacc said the change in threshold could result in a “quite a big pool of potential clients gone”. 

Blick Rothenberg’s Salter questioned why this is happening now and concluded that HMRC has been underfunded for a number of years and the move to take people out of self assessment appears “purely designed to help HMRC manage their workload and is nothing to do with ‘tax simplification’ or helping ensure that ‘taxpayers only pay the correct amount of tax’.”

Replies (17)

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Tornado
By Tornado
12th Jun 2023 12:46

"He said this means phoning or writing to HMRC instead."

Good luck with that. Yet another idea that falls over from the start because HMRC are difficult (if not now impossible) to contact by phone or letter and the word email is not in their vocabulary.

When will HMRC learn that they need to get the basics right first, and then they will have a better chance of their new ideas succeeding.

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By fawltybasil2575
12th Jun 2023 13:11

Unless I am “missing something”, surely this is a “non-problem” inasmuch as all employed taxpayers (who I would surmise represent nearly 100% of taxpayers with incomes over £100,000) can require HMRC to issue a notice to file a Self-Assessment Tax Return.

Hence it should IMHO be standard practice for accountants to so require HMRC (unless there are exceptional circumstances present which render such action inappropriate). The legislation is here:-

https://www.legislation.gov.uk/ukpga/2003/1/section/711

Basil.

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By AndyC555
12th Jun 2023 13:26

Nothing to stop people filing a tax return anyway.

HMRC treat these as voluntary or 'unsolicited' and they are processed in exactly the same way.

If someone is currently in the SA system, it's no big deal.

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Replying to AndyC555:
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By petestar1969
14th Jun 2023 11:39

Not always.

I filed my own return this year, small refund due to EIS, and they didn't process it as they believed I didn't need to file.

I now need to contact them as a punter to persuade them to process the return I submitted.

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By ireallyshouldknowthisbut
12th Jun 2023 13:51

I did wonder if this was due to the threshold of loss of PA's @ £100k being pushed up to £150k as a pre-election bribe and HMRC accidentally announcing it early. Its one of those things which were put in years ago and has never been indexed. Had it been indexed from 2010 it would be about £150k by next March.

However I imagine its just the large volume of returns this generates of the types and HMRC trying to cut their workload.........and failing to understand in doing so the tax take will be lost on a lot of savings and investment income plus all the other issues at this sort of level...........plus trying to sort this out via coding notices wont fly too well given coding notice computer is all over the place and simply cant cope with annual bonuses...........which will then generate a large number of calls to HMRC.........and probably just as much work as now, if not more.

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By Not Anonymous
12th Jun 2023 18:43

This line in the Agent Update is a little surprising.

• receipt of any untaxed income

Since banks have stopped deducting tax at source HMRC have generally been happy to use the figures banks report only suggesting an SA return is needed if interest in a tax year exceeds £10,000.

Do these higher income individuals have their own rules i.e. only taxable income is pay £110,000 and untaxed interest of £500 = SA return but pay of £95,000 and untaxed interest of £3,000 doesn't need a return?

I doubt many earning over £100k don't have ANY untaxed income.

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By dmmarler
14th Jun 2023 10:35

So this is why pensioners are having all their tax due on their state pension deducted from their company pensions, and so facing a nasty cash flow hiccup as their company pensions are reduced while they are still paying tax on account! Company pension payrolls are suffering with many calls from pensioners as tax erodes their pensions over and above BR with K codes, and quite rightly referring pensioners to HMRC. Needless to say, HMRC did not send out Notices of Coding to taxpayers so the first the pensioners knew was a £100 reduction in their company net pension .... quite a huge chunk of cash for many. HMRC is now going to have to deal with a lot of irate pensioners which will take more time, particularly when they get their MPs involved.

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By GDavidson
14th Jun 2023 11:31

I now have a state pension in excess of the PA (because of serps) so am on a K code because I still work. For those not working how does HMRC see them paying the tax they are due?

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Replying to GDavidson:
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By Hugo Fair
14th Jun 2023 12:32

"For those not working how does HMRC see them paying the tax they are due?"

As per dmmarler above, by notifying anyone else paying that person something via PAYE (hello non-state pensions) to use a punitive tax code/basis ... punitive because it often includes other incorrect assumptions carried over from last employment!

But your question is perfectly relevant - as without a SA return, where is the calc of tax due from all those payments from which tax is no longer deducted at source (interest, dividends, and so on)?
And, as you hint, what about those not in receipt of any PAYE'd payments?

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Replying to Hugo Fair:
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By GDavidson
14th Jun 2023 14:00

I guess they are supposed to fill in an SA200 but you only get one of those if HMRC send one to you. How will they know to? Will they bother?

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Replying to GDavidson:
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By Not Anonymous
14th Jun 2023 19:42

GDavidson wrote:

I guess they are supposed to fill in an SA200 but you only get one of those if HMRC send one to you. How will they know to? Will they bother?

This is one of the reasons why Simple Assessment was introduced.

If no other Self Assessment criteria (in HMRC's eyes) applies then HMRC will issue a Simple Assessment calculation (PA302) showing the State Pension and any other taxable income they are aware of, presumably untaxed interest in a lot of cases.

Unlike a normal PAYE calculation this is a formal assessment so can be appealed against and HMRC can enforce collection as a debt if the tax owed isn't paid.

They usually have the same standard due date as Self Assessment balancing payments, 31 January after the end of the tax year, but don't have the POA element for the following year.

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Replying to Not Anonymous:
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By dmmarler
15th Jun 2023 11:45

We should not overlook the over-statement of State Pension the DWP provides to HMRC. DWP forgets most taxpayers received their State Pension in arrear - and tells HMRC how much they would have received by using a multiplier of the weekly rate. Each year there is then the familiar round of appeal, etc., until it is right. This will cause more work for HMRC if everyone goes through due process.. . . . . .

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On The Spot Accountants - Local Accountant - Tax Experts
By onthespottax
14th Jun 2023 17:12

Great article chiming with our approach.
We'll advise these clients to continue to prepare a return:
1. We can't rely on tax codes being correct or up to date.
2. In particular, pension schemes and contribution levels change, so claims are easily missed or wrong.
Currently, we have to look at most changes from HMRC through the lense of lack of staff/not being able to cope with workloads. It's the only way these changes make sense...

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By GMTax
15th Jun 2023 11:25

This seems to be pretty extraordinary, because I would hope most people with income > £100K are making decent levels of charitable donations under gift aid. But unless they complete a tax return they won't get the higher rate relief on their gift aid donations. There is no way HMRC can know (other than via the taxpayer themself) what gift aid donations someone is making.

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Replying to GMTax:
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By Not Anonymous
15th Jun 2023 13:29

GMTax wrote:

This seems to be pretty extraordinary, because I would hope most people with income > £100K are making decent levels of charitable donations under gift aid. But unless they complete a tax return they won't get the higher rate relief on their gift aid donations. There is no way HMRC can know (other than via the taxpayer themself) what gift aid donations someone is making.

Whatever the rights and wrongs of this change are there is nothing to prevent someone from informing HMRC about Gift Aid donations outside of a Self Assessment return, it isn't unique to people who complete tax returns.

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By Malcolm Veall
26th Jun 2023 09:12

One law for the rich, another for the poor:

Yet those with income under £12,570 are being fined for not filing: https://www.theguardian.com/money/2023/jun/26/hmrc-fined-184000-low-earn...

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Replying to Malcolm Veall:
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By Hugo Fair
26th Jun 2023 14:30

Makes you wonder about yet another of the statistics that HMRC throws out there every year ... the one about all the people *failing* to make a return by the deadline.

As I've mentioned before:
a) the only possible metric being used is as a %age of those to whom they've issued a notice to file (not the same as all those who do/don't need to make a return);
b) in addition to the 184,000 mentioned here (as having no tax to declare), there must be some who have died (but were remiss in not telling HMRC about that) + some more who have moved/fled overseas (and not only may have no tax to pay but will probably be unaware they're failing to receive post from HMRC).

There will undoubtedly be other such categories - so the relevant stats would be:
1. How many people *do* make a return but are late to do so?
2. How many people to whom penalties are issued even make a start at paying them?

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