Wealthy Taxpayers within PAYE – When is a Tax Return Required?
If you’re a high earner and your tax is typically handled through PAYE, you might assume that you don’t need to worry about filing a tax return. However, that assumption could lead to costly mistakes. Even if all your income is taxed through PAYE, HMRC may still require you to submit a Self Assessment tax return, particularly if you fall into the “wealthy taxpayer” category.
HMRC’s Recent Letters: What You Need to Know
Earlier this year, HMRC sent letters to wealthy taxpayers who hadn’t submitted tax returns for the 2020/21 and/or 2021/22 tax years. These letters were targeted at those who had filed returns for surrounding years but missed one or two in between. If you received one of these letters, it’s because HMRC had previously issued you a notice to complete a Self Assessment tax return, and they’re now following up on that requirement.
The letter requests that you submit the missing tax returns by 12 July 2024. If you fail to do so, HMRC will estimate the tax they believe you owe based on the information they have, and they will also impose late filing penalties. However, you can appeal these penalties if you have a reasonable excuse for the delay.
If you received a letter but believe you don’t need to file a return, it’s crucial not to ignore it. Instead, contact HMRC directly on 03000 516640 or via email at re*******@******ov.uk to clarify your situation.
When is a Tax Return Required?
For many taxpayers under PAYE, it might seem unnecessary to file a return, especially if all your income is taxed at source. However, HMRC has historically required wealthy individuals to submit tax returns even if they fall within the PAYE system. This is likely due to the fact that wealthier taxpayers often have additional sources of income, such as savings and investments, which might not be fully covered by PAYE.
For the 2022/23 tax year and earlier, if your income was £100,000 or more, you were required to file a tax return, even if you had no other income. However, this threshold has been raised to £150,000 for the 2023/24 tax year and will be completely abolished for returns from 2024/25 onwards.
That said, you’ll still need to file a return if you have additional income to declare. This includes:
- Self-employment income over £1,000
- Partnership income
- Income falling within the High Income Child Benefit Charge
- Chargeable gains (such as from selling property or investments)
- Rental income over £1,000
- Taxable foreign income
Additionally, if you have significant savings or investment income, you might need to file a return. Recent changes to tax thresholds mean that many PAYE taxpayers could now have tax liabilities on savings or dividends for the first time.
For instance, the reduction of the additional rate threshold to £125,140 for 2023/24 onwards means taxpayers earning between £125,140 and £150,000 no longer benefit from the personal savings allowance, which is only available to higher and basic rate taxpayers. Even if you remain in the higher rate band, rising interest rates could push your savings income above the personal savings allowance. Similarly, the reduction in the dividend allowance to £1,000 for 2023/24 and to £500 for 2024/25 might result in tax being due on dividends for the first time.
Take Action: Review Your Situation
If you’re a wealthy taxpayer within PAYE, it’s essential to check whether you need to file a tax return. And if you’ve received a notice to file but believe a return isn’t necessary, contact HMRC to avoid potential penalties.
Need help navigating these rules? The team at Jon Davies Accountants is here to assist. Get in touch with us today to ensure you’re meeting all your tax obligations and making the most of any available allowances.
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Any questions?
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