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  • Writer's pictureRyan Witter

Did the tax return threshold change for high-earners?

Unless you’re a keen fan of HMRC’s monthly agent update – cue tumbleweed – you may have missed their recent rule change that affects high-earners. So let us catch you up.

At the end of May 2023, HMRC announced that they’d be raising the threshold at which people with a salary (PAYE) have to file a tax return. The rule was that you had to file if you earned £100,000+ per year.

But now it’s changed. From the 2023/24 tax year which started on 6th April 2023, you don’t have to file if you’re PAYE unless you’re earning £150,000+.

A bit of background If you don’t earn anything close to £100k, it’s likely you had no idea that filing a tax return was a requirement. Even some people who do earn £100k+ actually don’t know that they need to file!

So, here are the facts. When you start earning £100k+, you start to lose entitlement to something called the personal allowance. The personal allowance is the first chunk of your income that you earn tax-free.

In the 2023/24 tax year, the personal allowance is £12,570, but it’s subject to change depending on the chancellor at the time, the Autumn/Spring Statements, and the way of the wind.

When you earn £100k+, you lose £1 of your personal allowance for every £2 you earn over £100k. So, by the time you earn £125,140, you’re not entitled to any of the personal allowance.

Why do you file a tax return? Great question. Get ready to sink your teeth into the answer. In true HMRC fashion, there’s an extra and expensive layer of confusion when it comes to taxing high-earners.

As you may (or may not) know, you’re usually taxed on multiple tax rates at once. These multiple rates account for different portions of your income. Check out the image below to see a visual of what we mean by this.

When you earn £100k+ and start to lose your personal allowance, each tax-free £1 you lose becomes £1 of income that needs to be taxed. But – horror – it’s taxed at both 20% (the basic rate) and 40% (the higher rate). This gives it a whopping 60% total.

You therefore need to file a tax return to make sure that this is being done correctly and that you don’t owe HMRC any money. Yes, you read that right.

What’s your adjusted net income? Your adjusted net income is a fancy way of saying your total taxable income. Generally, this doesn’t include allowances or tax reliefs. But it does when it comes to the personal allowance. Classic.

As a result, the tax return that high-earners do is essentially to make sure that your adjusted net income is correct. Which it often isn’t on this salary!

If your tax return reveals that you owe money to HMRC, you pay this before the tax return deadline on 31st January. HMRC will also change your tax code to reflect the correct taxing of your PAYE income.

I don’t earn £150,000 – what do I do now?

If you usually file a tax return as a high earner, things are changing. From 2023/24, you’re no longer required to do it until you earn £150,000+.

This means that unless you also earn income outside PAYE, you don’t need to file a tax return after 31st January 2024.

That said, you can still file if you prefer. According to our TaxScouts accountants, the majority of £100k+ tax returns that we file reveal that PAYE taxing was inaccurate. So the benefit of filing is that you can give yourself the opportunity to get ahead of an accruing tax bill and get your tax code corrected ASAP.

What next for £100k+ earners? Basically it’s not you, it’s them.

When you file your 2022/23 tax return, if you have PAYE income between £100,00-£150,000, HMRC will send you an exit letter telling you that you no longer need to file. Will I stop losing the personal allowance?

Afraid not. That’s what makes this change even more mysterious. HMRC make a lot in tax from high earners, especially those unaware that they had to file a tax return in the first place. So it’s an unusual move to raise the threshold to file without also changing the circumstances that make filing necessary.

In a nutshell, you’ll still lose eligibility to the personal allowance when you start earning £100k+.

Why did this change happen? Folks, who knows the inner workings of HMRC? So far, the only information we’ve seen is from the agent update. It could be a precursor to HMRC automating how they taper the personal allowance through PAYE, but they’ve given no indication of this if it is on the cards…



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