In a significant development, HMRC has announced the removal of the self-assessment filing threshold for high earners with PAYE income surpassing £150,000, effective from the tax year 2024-2025. This alteration, building on the previous threshold increase to £150,000 in the 2023-2024 tax year, impacts around 338,000 taxpayers. While the prospect of not filing a tax return may seem appealing, it introduces complexities and potential pitfalls that demand careful consideration.
The exemption from filing a tax return applies solely to individuals whose primary income source is taxed under PAYE. Yet, those with additional income from dividends, savings interest, or property rental must still submit an annual return. Matthew Todd from RSM UK warns that complexities in the UK tax system may lead to incorrect tax payments and expose individuals to HMRC penalties.
Failure to file a tax return can result in inaccurate tax payments. Late payment interest and penalties may be imposed by HMRC for underpayment of tax or the failure to file a required tax return. Jon Stride of ATT technical steering group emphasizes the risk of inadvertently underpaying tax due to overlooking interest and dividend income, potentially leading to interest charges and penalties.
High earners, despite the removal of the filing threshold, face risks related to taxon savings. The £500 savings interest tax-free allowance for high earners could become a concern, especially in times of high-interest rates. Changes to the dividend allowance also introduce potential tax liabilities for those earning more than £500 in dividends.
While adjusting PAYE codes can ensure correct taxation, this process may be time-consuming and challenging for taxpayers to manage. Instead, taxpayers are advised to review their tax position after each tax year, reporting entries on a tax return for peace of mind. High earners, in particular, are encouraged to consider using ISAs to mitigate the impact of savings and investment income on their tax liability.
HMRC's push to reduce the use of tax returns may inadvertently create more pressure on already strained customer service teams. Changes to the self-assessment system, introduced without consultation, raise concerns about potential cost-saving measures affecting taxpayers and the wider implications on the tax landscape.
Incorrect tax payments, penalties, and oversights on additional income sources underscore the importance of vigilance. To navigate these changes seamlessly and ensure your tax affairs are in order, consider consulting with tax professionals.
Schedule a consultation with Elena Meskhi and her team to address any concerns pertaining to these tax changes. Ensure your financial peace of mind and stay informed about the evolving landscape of tax regulations.
